As one of the world's largest producers of minerals and coal, Indonesia boasts abundant mining reserves, encompassing a variety of valuable commodities from nickel to gold. The mining industry in Indonesia has played a crucial role in the country's economy for several decades, making significant contributions to economic growth and strengthening Indonesia's position in the global market.
CRIF Indonesia predicts that the mining sector in 2024 will continue to experience growth, albeit at a slightly lower rate than the previous year. With a projected growth rate of 3.48%, the sector is still expected to perform positively despite an anticipated decline in investment in the mineral and coal sectors throughout 2024. According to a CNBC Indonesia report published on February 29, 2024, investment in this sector is expected to drop by about half from 2023 levels, which reached USD 7.46 billion. This fall is attributed to the completion of major smelter investments, such as those in Freeport and Amman.
Furthermore, CRIF Indonesia highlights the potential impact of the conflict between Iran and Israel on the mining sector. The prolonged tension between these two countries could cause fluctuations in global mining commodity prices, including coal and gold. The conflict in the Middle East could also lead to higher oil prices since the region is one of the world's largest producers of crude oil.
Mining Sector Contribution to National GDP
Throughout 2023, the mining sector made a significant contribution to the national Gross Domestic Product (GDP), accounting for 10.52% or IDR 2,198,018 billion. Although this percentage is still below that of key sectors such as manufacturing and agriculture, the mining sector surpasses the contributions of several other industries. Specifically, the mining sector outperformed sectors such as construction at 9.92%, transportation and warehousing at 5.89%, and information and communication at 4.23% (BPS, 2024).
In Indonesia, the mining sector is divided into four business groups: Oil, Gas and Geothermal Mining, Coal and Lignite Mining, Metal Ore Mining, and Mining and Other Excavations.
Based on the diagram showing the contribution of mining sub-sectors to the total contribution of the mining sector in Indonesia, it is evident that the "Coal and Lignite Mining" sub-sector dominates with a contribution of 50.80%. This underscores that coal and lignite remain the primary commodities in Indonesia's mining industry. Furthermore, the "Oil, Gas and Geothermal Mining" sub-sector contributes approximately 23.71%, highlighting the importance of the energy sector within the country's mining structure. Meanwhile, the "Metal Ore Mining" and "Mining and Other Excavations" sub-sectors have smaller contributions of about 12.38% and 13.12%, respectively.
Glancing at Coal Performance in 2023 and Predictions for 2024
The price of coal experienced a significant decline throughout 2023. The main factors contributing to this drop included tight interest rate policies and a slowing economy in China. Additionally, a warmer winter in Europe led to reduced demand for coal for heating. As a result, coal prices fell by 64.85%, reaching USD 136.95 per ton by the end of 2023.
The coal sector continues to face several setbacks. The Chinese New Year celebration, which typically boosts coal demand, did not significantly impact coal prices this year. Historically, energy consumption usually increases during the Chinese New Year. For instance, during the Chinese New Year 2575 Kongzili, which fell on February 10, 2024, coal prices remained on a downward trend. According to Bloomberg, the cost of ICE Newcastle coal for the April 2024 contract stood at USD 118.15 per ton, marking a 9.45% decrease since the beginning of the year.
CRIF Indonesia notes that the Chinese New Year celebration alone is insufficient to lift coal prices. The downward pressures on prices remain dominant. Domestically, the Ministry of Energy and Mineral Resources (ESDM) is developing a roadmap for the early retirement of coal-fired power plants (PLTU). Two plants, PLTU Cirebon-1, and Pelabuhan Ratu, are set to be retired early. Consequently, coal prices will need time to recover, pending increased demand from China and India. While the Chinese New Year might provide a short-term boost, it is likely only to stabilize coal prices rather than cause a significant increase.
Moreover, the unusually mild winter in Europe and other regions in the northern hemisphere due to extreme summer conditions, has also reduced coal demand from European countries. CRIF Indonesia predicts that coal prices will trade between USD 100 and USD 150 per ton by the end of Q4/2024. In Q2/2024, prices are expected to range from USD 80 to USD 200 per ton. Meanwhile, the high crude oil prices and concerns about the escalation of conflict in the Middle East also support coal prices. Although the geopolitical tensions in the Middle East pose a risk of wider conflict, it seems unlikely that coal prices will soar back to the 2022 average levels of USD 276 per ton.
Overall, the decline in global coal prices throughout 2023 reflects the complexity and uncertainty within the coal mining industry. Factors such as economic policies, global market conditions, and geopolitical risks all play a role in shaping the prices and performance of the coal market both nationally and internationally. (Source: CNBC Indonesia).
In 2024, CRIF Indonesia projects that the coal sector in Indonesia will experience a decline in performance alongside the predicted decrease in coal commodity prices. CRIF Indonesia's projection aligns with the analysis provided by Ahmad Zuhdi, a mining industry analyst from PT Bank Mandiri (Persero) Tbk, who told CNBC Indonesia that coal prices in 2024 are expected to decline on average throughout the year, with a price range of around USD 117 per ton. This figure is significantly lower compared to the average price throughout 2023, which reached USD 172.05 per ton, and the projection is considered the lowest since June 8, 2021. However, the projected price is still relatively high compared to pre-pandemic periods, based on the possibility of financial easing policies in the future.
Additionally, according to data from Statistics Indonesia (BPS), the downward trend in coal prices is expected to continue. In February 2024, the average coal price fell to USD 78.35 per ton from USD 81.66 per ton in January 2024. This price drop is also significant compared to February of the previous year, where coal prices plummeted 32.32% from USD 115.77 per ton. Despite the increase in export volume from 29.05 million tons to 33.05 million tons, the substantial price decline still impacts the total export value of Indonesian coal.
Approaches to Improve Coal Performance: Indonesian Government
CRIF Indonesia recommends that the government implement several strategies to enhance coal performance in 2024 and 2025:
- Consider subsidy programs or tax incentives to alleviate the financial burden on the coal industry.
2. Energy Diversification and Economic Cooperation:
3. Geopolitical Risk Mitigation and Security Strengthening:
5. Research and Development Support
- Increase support for research and technology development in the coal sector by allocating research funds and providing incentives for researchers.
6. Dialogue and Information Disclosure:
7. Conducive Legal and Regulatory Certainty:
- Provide legal certainty and regulations that are conducive to the coal industry to create a stable investment climate and encourage industrial growth.
By implementing these steps, it is hoped that the coal industry in Indonesia can become more resilient, and sustainable, and create more opportunities for society and Indonesia.
