Indonesian CoalSunrise to Sunset (part 1)Ross Hilton (email@example.com
Who has all the coal:USA: 22%Russia: 14.4%China: 12.6%Australia 8.9%India 7%Germany 4.7%Ukraine 3.9%South Africa 3.5%Serbia 1.6%Colombia 0.8%Canada 0.8%Poland 0.7%Indonesia 0.6%
Who is the biggest exporter of thermal coal inthe world:IndonesiaWho are Indonesia’s biggest customers:India and China
Why is the 14th largest coal deposit nation thebiggest exporter and why do they sell to 3rd and 5thlargest deposit nation:Price. Indonesia can sell coal loaded onto a ship forbetween $30-50/tonne. Australian costs are around$80/tonne. Chinese costs are around $98/tonne
Why is Indonesian coal cheap:It is easy to win, in reasonable yield depositsof reasonable calorific value, located on thebanks of the endless wide slow rivers ofKalimantan.
Why is it east to win:The Indonesians use open cut mines and coalwasheries, as opposed to longwall mining which has tochase seams of quality coal.An average yield for an open cut mine would be about1:1, or for every tone of coal extracted there is a tonneof waste.A longwall operation has a far better recovery yield ofabout 4:1, recovering four tonnes of coal for everytonne of waste, due to the targeted nature of followinga coal seam.
But:The coal needs to be separated from the waste (usuallyshale) in all but the highest yield deposits. This process,called washing, is carried out as close to the extraction siteas possible, to avoid shipping waste material.The need to wash even all but the best yieldingunderground material has given open cut mining adistinct advantage over the last 25 years.
Why is it reasonable calorific value:• A typical Australian thermal coal = 6,080 kcal/kg• A typical Indonesian thermal coal = 5,500 kcal/kg• A typical Chinese thermal coal = 5000 kcal/kg• A typical Indian thermal coal = 4000 kcal/kg
Why are the rivers an advantage:In Australia where the coal is transported via rail thetransport costs account for around 25% of the cost of atonne of coal. At $80/tonne this would mean around $20per tonne just for transport to the port.Rail is also expensive and difficult to establish, involvingengineering feats such as bridges, cuttings and tunnels, andis subject to complexities of government and labour control.The Indonesian rivers are free, and they already exist. Itgives Indonesia a big competitive and cost advantage.
Why does China import coal:China now imports around 180 million tonnes of coal ayear, despite having its own huge resources.The problem is the coal is located in the western andnorthern inland provinces, however the coal consumingcenters are located along China’s heavily populatedeastern and southern coastline, and coal must betransported long distances via railways, roads, inlandrivers and via coastal shipping from the west to the eastand from the north to the south. This adds considerablyto the cost and the railways present a huge bottleneck.
In addition the Chinese mines are mines are small, andare owned by township and village enterprises. They arelabour intensive and low productivity undergroundoperations, without the ease of open cut or the hightechnology of longwall seam mining.Where the resources are suited to open cut, in InnerMongolia, there is social resistance to the land seizureactivities required for mine expansion.
Why does India import coal:Although India has a well developed railway network,transporting the coal from the mines to the populationcenters adds greatly to the cost and puts tremendous strainon India’s struggling railway system.India doesn’t currently have the mining capacity to supplydomestic demand especially as the Indian coal is deepunderground.Indonesia coal, because it is easy (and cheap) to win and ismined close to the port, is far cheaper. Therefore India isbuying cheap coal to supplement local demand andsubsidise the economy.
Why the Indonesian mining boom will end:1. By 2016-17 the mines located near the main riverswill have exhausted the easy to win coal resources.They will have to move fresh deposits by truck or buildrailways lines, both adding greatly to the cost. AlreadyRussia is negotiating to build a railway line inKalimantan to move 20 million tonnes of coal a year, ata cost of $2.4 billion. This is bound to push up pricesto global levels.
Why the Indonesian mining boom will end:2. Until 2009 the miners were domestic owned, and soldcoal at prices they set. This was usually far lower than theregional spot price which is set at Newcastle Port NSW.The Mineral and Coal Mining Law (No. 4/2009) changedthat, forcing miners to sell at a price set by the Indonesiangovernment. The price went up and the tonnage soldwent down. Indonesia is no longer relying upon itscompetitive advantage of cheap production costs and arein open competition with the rest of the world.
Why the Indonesian mining boom will end:3. The government introduced a new law in 2012GR24/2012 stipulating that foreign owned miningoperations had to divest 51% interest by the 10th yearof commercial production. For many mines that willoccur around 2008.