Searing coal prices cause a frenzy among investors
With coal prices at an all-time high, foreign and local investors alike are clamoring to accumulate coal mines as well as coal-mining stocks. Bumi Resources is an example of this, having displaced Telkom Indonesia as the biggest company on the Indonesia Stock Exchange (IDX) in terms of market capitalization. High demand for the stock caused Bumi's share price to jump in excess of 40 percent since the beginning of the year, raising its market value to $17.8 billion (based its closing price on June 24), accounting for nearly 10 percent of the total market capitalization of the IDX. Aside from the controversial and hotly debated Adaro Energy initial public offering (IPO), there are currently four listed coal miners on the Jakarta Stock Exchange, in aggregate making up 15 percent and 20 percent of the total market capitalization and average daily turnover of the IDX respectively. If you had invested in all four stocks at the start of the year, today, you would be up an average 45 percent, or a seven fold return compared to if you had put your money in the bank. That said, it is not a surprise the planned $1.3 billion IPO for Adaro was 6.75 times oversubscribed. In fact, the Adaro IPO is so hot that Indonesia's mutual fund managers association reportedly stated it asked the capital market regulators to review the planned Adaro IPO as virtually all of it members were prevented from applying for the shares. They are not alone given that many international institutional investors also claimed they had also been excluded from what will be Indonesia's largest IPO ever. In the real sector, the coal bonanza is also causing a frenzy among local companies from other sectors, including Astra Group, that wish to invest in the commodity. To deal with local supplies, state electricity company PLN is currently considering going upstream by purchasing two medium-to-large coal mines from state-owned enterprises by next year. This is in spite of problems confronting the sector, including a lack of proper ports, which has caused coal shipment delays, burdening companies with extra costs and forcing coal producers and buyers to be more reliant on onshore coal terminals. Another problem is soaring coal demand. With coal prices up 169 percent in the past 12 months, producers are competing to sell their products on the higher-priced export market. In 2007, out of 215 million tons of Indonesia's total coal production, 163 million tons, or 76 percent, were sold overseas, leaving just 52 million tons for the domestic market. However, overseas sales could very well be understated on the back of illegal mining operations and coal smuggling. Compounding the problem is the fact that most local demand is for low-calorific coal, also sought after by Indian and Chinese buyers. Domestic coal demand is expected to reach 90 million tons by 2010, up 80 percent from current levels. Most of this demand stems from the electricity generation industry, in line with the government's plan for coal to account for 30 percent of Indonesia's total energy mix by the year 2025. PLN is currently the biggest single coal consumer domestically, consuming around 21 million tons in 2007. This coal usage is expected to triple in the next three years as a part of PLN's crash start program to build 10,000 megawatts of new coal-fired power plants by 2011. In 2008, to generate electricity, PLN expects to use 24.5 million tons of coal, before further increasing to 43.8 million in 2009 and to 83.5 million tons in 2010. This expected surge in domestic demand has raised fears among traders that the government may implement export restrictions in an attempt to secure local supplies. However, government officials we spoke to said such a plan was not in the cards, at least for now. However, it is likely the energy minister will implement his scheme for Indonesian coal producers to pay fewer royalties to the government in return for making coal supplies available domestically. Thus, even though coal is a leading source of atmosphere-warming greenhouse gases, its usage in Indonesia will continue to rise, as will consumption from rapidly industrializing nations, including India and China. Amid the current global economic slowdown, high demand for coal, a cheaper alternative to oil, could very well make prices for this commodity almost "too hot to handle". source: http://old.thejakartapost.com 25 June 2008
