Banpu banking on coal price recovery

BANGKOK: Southeast Asia’s third biggest coal producer Banpu Pcl is banking on a revival of Chinese demand to boost its 2013 output by 6 percent and lift prices to around $ 100 a ton in the second half.
Banpu, which has mines in Indonesia, China and Australia, is targeting a coal output of 45.7 million tons in 2013, up from 43 million tons this year, Chief Executive Officer Chanin Vongkusolkij said.
Chanin forecast coal demand to rise by an average 3 percent a year from 2013, which would help burn off the supply glut in global markets and firm prices that have dropped around 30 percent this year to around $ 82 a ton.
“It should take several months for demand to absorb the excess of supply. In the first two quarters of next year, the oversupply should continue but it should be better in the third quarter when we should see more balance,” he said.
An anticipated economic recovery in China, the world’s biggest coal buyer and producer, is expected to boost imports of coal in 2013.
Banpu sells almost 50 percent of its coal output to China, which Chinese industry officials say may import about 200 million tons of coal by the end of this year. “The problem we are facing is not demand, it’s oversupply,” Chanin said adding long-term demand will also come from Japan, South Korea and Southeast Asia.
Even though global prices are expected to increase, Banpu’s 2013 average selling prices will be higher than $ 80 a ton but lower than this year’s $ 95 because its coal, which has lower heating power than the industry benchmark, is sold at a discount to market prices, Chanin said.
About 35 percent of 2013 coal sales will be also fixed this year in forward contracts, while the remaining will be floated, he added.
Banpu’s Indonesian unit, Indo Tambangraya Megah Tbk (ITMG) mines, accounts for the bulk of its coal production and revenue. ITMG competes with bigger rivals PT Bumi Resources and PT Adaro Energy.
Chanin said the company’s overall 2012 output target was slightly less than a previous estimate of 44 million tons due to lower-than-expected production from its Australian mines.
Banpu, which aims for average output growth of 7 percent in the next three years, has cut its 2012-2015 investment budget by 30 percent to $ 1.25 billion to reflect falling coal prices and the global economic uncertainty, he said.
The budget includes a $ 425 million for Australian and $ 245 million for Indonesian mines; $200 million for exploration and development of two mines in Mongolia and $ 378 million for Banpu’s 40-percent owned Hongsa power plant in Laos.
In 2015, Banpu’s output will rise to 52.5 million tons, while its revenue is expected to increase by an average 10 percent a year, he said.
To cope with weaker coal prices, Banpu plans to extend its focus on cost control next year. Production costs per ton in Indonesia fell by 7 percent to $ 49.6 a ton in the third quarter of this year, Chanin said.
Shares in Banpu, which is valued at $ 6.8 billion in the Thai bourse, have dropped more than 30 percent this year, making it the worst performing stock among Thailand’s large-cap companies.

Apart from weak coal prices, Banpu shares are also under pressure by concerns about a court case involving its former partners in the Hongsa power plant project in Laos.
In September, a Thai court ordered Banpu to pay about $ 1 billion in damages to its former partners.
Banpu plans to appeal the ruling, Chanin said, adding he was confident in the company’s integrity and transparency.