COALspot.com - The Director General of Mineral and Coal of Indonesia once a again revised down Indonesian coal benchmark price this month.
The Mineral and Coal department has declared October HBA at US$ 57.39 per ton for 6322 GAR power plant coal. The October price reference for Indonesian coal has declined 1.41 per cent or US cents 82 per ton month over month and lost 10.10 per cent year to date.
According to the date from Director General shows that, the government has fixed US$ 14.18 per ton (decline 1.39 per cent month on month) for the coal with calorific value 2,995 kcal/kg on GAR with total moisture 50.10% on as received basis for October 2015 delivery. The royalty and taxes will be calculated based on this declared HPB. In the meantime, the government also fixed US$ 41.76 per ton as HPB for 5000 GAR coal with total moisture 22.40%, Ash 8.90% and Sulphur 0.54% for October 2015 deliveries.
Indonesian thermal coal reference price or called HBA recorded the lowest level in 82 months in this month or since launching of HBA by the government of Indonesia in January 2009.
Indonesian coal benchmark price for October 2015 was calculated based on calorific value of 6,322 kcal/kg (GAR), stated to be using a formula based on the September 2015 index average of ICI-1 (Indonesia Coal Index) 25%, Platts-5900 25%, NEX (Newcastle Export Index) 25%, and GC (globalCoal Index) 25% and its was calculated considering coal with GCV (GAR) 6,322 kcal/kg, Total Moisture (arb) 8.00%, Total Sulphur 0.8% (arb), Ash Content 15 % (arb) and delivery free on Board (FOB) Vessel basis and apply to spot contract, delivery between 1 – 31 October 2015.
The highest benchmark price was declared by the Ministry of Energy & Mineral Resources of Indonesia in February 2011 and compared this month’s price, the February 2011 price was higher by US$ 69.66 per ton or fell 54.83 per cent.
The government of Indonesia was publishing a monthly coal price reference (HBA & HPB) since January 2009 to be used by coal producers for all spot and term contracts.
However, the official implementation of HBA was commenced since September 2011. According to government regulation, the coal benchmark price must be used by the holders of production operation IUPs, special production operation IUP's, and CCoWs as a reference in determining the coal selling price for a particular period.
The declared HBA in October 2015 was 14.67 per cent or $ 9.87 lower compared to the same period in 2014.
HBA of February 2011 was the highest since the launching of HBA by the government of Indonesia (US$ 127.05 / MT for 6322 GAR coal) and the lowest was declared in this month (US$ 57.39 / MT).
This month declared price is only valid for the spot price (loading on or before 31 October 2015), while as for term price (up to 12 months supply), the average reference price (HPB) of the previous three months will be used to determine the selling price. (50% of the latest available month HPB (this month) 30% one month prior HPB and 20% of two-month prior HPB).
The government also declared price marker for eight brands of Indonesia's coal, which are most commonly traded in the market. Those eight brands act as the benchmark and used to calculate other 67 coal types with a quality similar to the coal price markers.
For sales in the barge, the reference price is reduced by barging and trans-shipment costs from the barge to the vessel. The government has recently issued a regulation (644.K/30/DJB/2013 dated 21 March 2013) to regulate or determine coal prices on FOB barge. The government also fixed the freight for barging, surveyor, insurance and etc., to determine FOB barge price. Transshipment cost US$ 4.00/MT + Surveyor cost US$ 0.25/MT + Insurance 0.80% per shipment + Barging cost (for 270 footer - (US$ 0.0221 X barging distance) + US$ 3.7406, for 270 - 330 footer - (US$ 0.0184 X barging distance) + US$ 3.1172 and > 330 footer - (US$ 0.0154 X barging distance) + US$ 2.6002.
The coal price reference is being established to fulfill the requirement of mining law 04/2009 and ministerial decree No.17/2010. In addition to that, it aims to increase government revenue from royalties from coal producers.
The excess of coal supplies and weak demand, fast developments of renewable energy and fall in oil prices are still to be blamed for obstacle of price recovery or the main reasons of falling of prices. According to miners, the today’s price levels are not supporting any new investments or new explorations in coal mines.
According to reports, the free cash flow of various Indonesian coal miners have turned negative, the generated cash from coal production cannot cover companies’ operational costs. Big Indonesian coal players are now eager to diversify into other businesses such as power generation and logistics.
Low coal prices have big implications for exporting countries like Indonesia, Australia, South Africa and Russia. We believe it will take several years to recover fully as the supply is still quite high compare to the demand. The price of oil fallen from more than $100 per barrel in June 2014 to under $47 today (WTI).
However according to EIA’s Medium-Term Coal Market Report 2014, the global coal demand growth has been slowing in recent years, and the report sees that trend continuing. Coal demand will grow at an average rate of 2.1% per year through 2019.
According to the EIA, the global demand for coal over the next five years will continue marching higher, breaking the 9-billion-tonne level by 2019. The report noted that, despite China’s efforts to moderate its coal consumption, it will still account for three-fifths of demand growth during the outlook period. Moreover, China will be joined by India, ASEAN countries and other countries in Asia as the main engines of growth in coal consumption, offsetting declines in Europe and the United States.
To increase state revenue from the mining sector, the Government of Indonesia has imposed a new final income tax on any sale of mineral and coal. The new income tax, i.e. Article 22 Income Tax, is regulated under Minister of Finance ("MOF") Regulation No. 107/PMK.010/2015 regarding the Collection of Withholding Tax in Connection with Payment for Delivery of Goods and Imports or Other Business Activities. The regulation came into force since August 8, 2015.
Article 22 Income Tax, at the rate of 1.5%, now applies to any sale, either domestic or export, of non-processed or non-refined minerals (metal, non-metal and stone) and coal. Exporters must pay the income tax to the state treasury through a post office, foreign exchange bank or any bank appointed by the MOF. Evidence of payment will be verified by the Directorate General of Customs and Excise as a required supporting document for the export notification and will be used as a basis to issue an export clearance.
This income tax is only applicable to holders of a mining business license (Izin Usaha Pertambangan). It does not apply to holders of a Contract of Work (Kontrak Karya) or Coal Contract of Work (Perjanjian Kerjasama Pengusahaan Pertambangan Batubara), who are subject to different financial obligations under their respective contracts.
Ministry of Energy and Mineral Resources (ESDM) is also in process to revise methodology or mechanism to determine Indonesian Coal Price Reference (HBA) and expected to complete soon. The government wants the Indonesian Coal Price Reference to reflect its true value of Indonesian coal.
According to SSEK, a law firm from Indonesia, Since it is a final income tax, this tax will be imposed on the gross income of the company without deducting any expenses incurred to produce, collect or maintain such income. This means that the company must pay the income tax even if the company is not profitable, since this tax is payable upon any sale of minerals and coal.
It would be nice to see coal prices settle at a point where both the producer and consumer can sustain. Will it happen any time soon……..?. Since It’s all about the oversupply, we hope that the supply and demand balance will be restored soon.
Click here for full details of Indonesian coal price reference since January 2009.(cs).
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