Sticky coal price
- India to increase domestic coal production and lowering coal import.
- We raise our FY18F avg coal price assumption to $80/t (from $70/t).
- No significant impact from fixed domestic coal price regulation (DMO).
- Maintain Overweight coal sector,
India coal reform could reduce the country's coal import. India will end state monopoly on coal mining industry which have been ongoing in the past 45 years. Private companies will be allowed to enter coal mining sector under an auction system. Company which offers to the state the highest coal price per ton where the coal mine is located will win the mining rights. Several global mining giants are showing their interest to invest in India's coal mining sector. The government of India aims for higher productivity in the coal mining industry to meet increasing power demand, in turn potentially reducing India's dependency on coal import, in our view.
We raise our coal price assumption to $80/t. We raise our average coal price assumption to US$80 per ton for 2018 (previously US$70/ton) as YTD18 coal price average has reached US$102/ton. We have incorporated possible production recovery from China, slower China demand post winter and lower import from India on our new coal price estimate. Positive catalyst for coal price this year would come from supply disruption from Indonesia and Australia particularly in 1H18 due to high rainfall in the first three months of 2018, which we expect to be sustained as sea surface temperature in the equatorial area of the Pacific Ocean remains low. This is a good indicator of potential high precipitation in SE Asia and Australia (Fig. 9).
Limited impact from DMO fixed price. The government of Indonesia's policy of fixing coal pricing for public electricity use for 2018-19 at US$70 per ton will potentially reduce
Maintain Overweight. Despite potential coal price correction from the current level, we maintain our positive view on the coal sector as we believe seaborne thermal coal supply will remain sticky due to limited global investments on the sector, inadequate heavy equipment supply to support production growth acceleration and continuous weather disruption in Indonesia and Australia.
Sumber : IPS RESEARCH
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