The Indonesia Coal Mining Association foresees India will pass Japan to be the biggest buyer of Indonesian coal by 2011. Coal imports by India may rise to 70m tonnes next year, up from 40m tonnes this year.
India is also shifting towards the low-rank coals (<5,000 kcal/kg ADB) due to increase in domestic consumption. Indonesia is expected to produce 305m tonnes of coal this year, 240m of which will be exported. The chairman of the the association also commented on coal prices to hit US$100/tonne by year-end on bad weather that could disrupt Indonesia's coal production and transshipment as well as due to cold spell towards the end of the year.
Comment: This view is basically shared by consensus including us. Good news for the low-rank coal producers such as ADRO and PTBA, to a lesser extent BUMI as well. PTBA is more strategically located to tap this opportunity, closer to India than its Kalimantan peers, which also explains the increasing interest of Indian companies (such as Reliance) recently to invest in Sumatra's coal railway. 4Q also typically sees a pick up in coal prices, and Sep typically sees prices bottoming-out, so these coal names start to look interesting again.
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