Thermal Coal Long Term Outlook With Focus on Indonesia

Our client, a US-based investment management firm, was requesting an intermediate update to CRU’s long term thermal coal market outlook. In addition to the global outlook, the client also requested a review of the Indonesian thermal coal market with focus on a list of Indonesian coal producers of interest and their respective assets in the region. The client was seeking this analysis to support a review of portfolio components with upstream thermal coal assets in Indonesia.

From the analysis, the client was able to gain an overarching view of global thermal coal market as well as the dynamics expected to drive supply and demand into the long term. This global outlook included analysis of mature Northeast Asian consumers as well as emerging developing markets in Southeast Asia and their forecast demand. Analysis of supply was conducted on a regional basis with focus on Indonesia and competing producing regions such as Russia, South Africa and Australia.

The global demand for thermal coal was constructed from a breakdown of CRU’s primary energy demand model, which applies CRU’s expectations for coal-fired electricity demand. This model also includes the forecast effects of global environmental policies, coal-fired power plant operation and economic growth. The supply outlook was developed using CRU’s in-house supply platform which allowed for a regional breakdown of operational mines as well as oncoming projects in the forecast period.

Insight into the fundamentals of the Indonesian thermal coal market included a forecast supply profile with a mine-by-mine breakdown, regulatory issues affecting the Indonesian coal mining industry, government implemented price cap mechanisms, logistical issues, production royalties and export taxes. The competitiveness of major producers in Indonesia were investigated in terms of their production profiles, coal quality and business costs. The staked producers and their respective assets were examined with respect to existing projects and operations, production forecasts, geology and reserve volumes, as well as business cost curve and margin analysis.

This analysis provided the client with a current insight into the thermal coal market from the perspective of an investor rather than a contributor to the thermal coal supply chain. The client was able to gain detailed market transparency specific to their portfolio by region, and also on an industry level by producers. This report can effectively be used to support the client with current and future portfolio analysis and investment decisions related to thermal coal assets.

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