Our research associate Mita publishes her third Komodo report today. This is a report with information gathered from on the ground sources. It is intended to provide more color and detail to trends in the marketplace.
Mita talked to local coal traders and found out that they expect at least 10% lower coal output since rain has been battering the region for the past few months. The coal producer association has apparently revised down its forecast by 6% from 320mn tones to only 300mn tones (still 6% higher than FY09 figure) due to unfavorable weather.
In addition to lower coal volumes, we are also gearing up for cost inflation due to particularly higher demurrage costs in 3Q10. This could surprise consensus, in our view. Mita noted that coal miners must pay around US$25-30k/day if the mother vessels do not leave the port on schedule. For barges, miners need to pay US$2,800-3,300/day. And the average waiting time for vessels is 7 days in 3Q10 vs. below 5 days in 2Q10. In term demurrage cost/ton, for some miners it could be twice as much as normal costs.
For investors who want to increase their exposure to Indo coal sector, it might be better to wait until 3Q10 results released later this month.
Other key points from her report today:
Weaker demand for Indonesian coal from China.
India and South Korea want more Indo coal. India will need another 25mt of coals in 2011 and 91mt in 2012 to feed new power plants.
Unusually heavy rainfall has been pouring in parts of Indonesia especially in Kalimantan, disturbing coal mining activities and cutting output.
We expect rain to continue falling until 4Q10 and further cutting down coal production.
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