By Antonio delos Reyes and Andrew Jones

July 12, 2021 - The Indonesian coal mining sector is upbeat on its prospects, despite COVID-19 cases reaching producing areas in east Kalimantan province and consumers' concerns the outbreak could curb output at a time when prices are near historical highs because of weather-related supply disruptions.

The Indonesian coal mining association (APBI) said that its members already developed action plans last year in the event that COVID-19 cases reach coal-producing areas. These include strict and frequent temperature checks and offsite quarantine facilities for workers that are suspected to have contracted the virus.

"Some producers are taking the initiative to implement measures to facilitate contact tracing in their workforce, which could restrict production in Kalimantan," one producer told Argus. "Looking at how serious the contagion is in Java and Bali, I feel it is only a matter of time before social distancing measures are imposed in Kalimantan,"

Coal producers are still operating as normal despite the rising number of cases. But they are closely monitoring developments to minimise the risk of COVID-19 affecting daily operations, the APBI. If producers are forced to halt operations because of an outbreak in their mining area, it said this will make it difficult for them to reach their production targets. There will also be a significant loss in revenue, it added, as an outbreak in a mining concession would lead to a lockdown to prevent the spread of the disease by infected personnel.

Coal producers are wanting operations to remain unhampered as they start increasing production for the latter half of the year to take advantage of higher coal prices. Indonesia's energy ministry (ESDM) said that it has received proposals from over 100 companies requesting revisions of their work plan and budget for the year, which it is processing.

Indonesian GAR 4,200 kcal/kg coal prices were last assessed by Argus at $63.48/t on 9 July. This was down from $64.44/t at the start of the month, which was the highest since Argus began assessing this market in 2008 and significantly higher than $44.90/t at the start of 2021. The July coal HBA reference price was set by the ESDM $115.35/t, the highest in nearly a decade.

Demand Outlook Firms

Indonesian coal prices have been supported by strong demand from China, which is being boosted in part by the country's ban on Australian coal imports, the APBI said. Coal demand in Asia-Pacific is expected to increase as more countries start to recover from the effects of the pandemic. Indonesian producers are looking to maximise revenue from their coal sales this year to offset the losses incurred in 2020 when COVID-19 first hit the region.

Prices have also been supported by weather-related disruptions to mining and logistics operations across Kalimantan following weeks of heavy rainfall. Another Indonesian coal producer told Argus that its production had fallen by at least 30pc from normal levels in June because of heavy rain, resulting in lengthy delays to shipments.

Indonesian coal output will have to increase significantly for the rest of this year for the country to reach its government-set output target of 625mn t, after production was below target during January-June.

Indonesia produced 292.87mn t of coal in the first half, according to ESDM data, or 47pc of the 2021 government-set output target of 625mn t. The government is targeting exports of 487.5mn t this year, but the country's suppliers will need to significantly boost seaborne sales in the second half to achieve this.