The price of coal isstill under pressure and is at its lowest level since 2016. The weakening of coal prices has finally put pressure on the performance of domestic coal issuers.
However, analysts view this sector still has the potential to recover in 2021. This is indicated by the demand for coal in China starting to show signs of recovery in the second quarter of 2020.
QuotingBloombergdata, in trading Monday (10/8/2020), Newcastle coal price for the most active parking contract was at US $ 52.75 per ton, or a correction of 0.85 percent from the price on the previous trading day.
Meanwhile, Quoting data from the Ministry of Energy and Mineral Resources (ESDM), the August reference coal price (HBA) was at US $ 50.34 per tonne.This level is also the lowest level since 2016. Throughout the 2020 current year, the HBA has corrected 23.64 percent.
The decline in coal prices is in line with the decline in consumption for electricity generation needs around the world.This is also influenced by the closure of power plants that are closed compared to the addition of new projects.
In the Global Energy Monitor research, it was stated that large coal generators in the US and Europe were closed in the first semester of 2020.Meanwhile, in Asia, many targets for developing new power plants have missed, even failed commissioning.
In the research, only 18.3 gigawatts (GW) of coal-fired power plants have successfully entered thecommissioningphase.Meanwhile, it was recorded that 21.2 GW of power plants in the world were closed in the first half of this year.
PT Ciptadana Sekuritas Asia analyst Thomas Radityo said this was evident from the decline in new coal stocks for power plants, which fell 10.81 percent compared to the previous quarter.
One of the causes for the decline in stocks, according to him, was the increase in industrial activity after the easing of the country’s lockdown policy.In addition, this decline in stocks is expected to occur due to an increase in heat waves in northern and southern China.
Nevertheless, he considered this not entirely a positive signal for the world coal industry, including Indonesia.This is because the Chinese government appears to be still adamant about their policy of tightening coal imports.
The Chinese government encourages local Chinese producers to ramp up production to meet anticipated coal consumption this summer.According to Thomas, this will have an impact on the shrinking of Chinese coal imports in 2020.
“This can cause coal imports in China to decline by 4.9 percent in 2020 and will lead to a coal surplus of 4 million tons in 2020 which will be followed by a deficit of 5 million tons in 2021,” he wrote in his research, quoted on Tuesday (11 / 8/2020).
On the other hand, coal demand in India has not shown a significant recovery.Although demand started to increase in June, power plant production is still expected to fall by 13.3 percent in the second half of this year.
“This does not bode well for Indonesian producers who supplied about 59 percent of the country’s total thermal coal imports in 2019,” he said.
He estimates that with the pressure of the crisis due to the Covid-19 pandemic which is still high, coal prices are expected to remain under pressure in the third quarter of this year or at least until the end of August or the end of September.
We still have a neutral view of the coal sector. Although the negative impact of Covid-19 will still haunt the coal market, we expect a recovery in 2021 which will boost demand for coal and coal consumption,” he said.
Among coal issuers that are in its coverage, he recommended PT Bukit Asam Tbk.(PTBA) and PT Adaro Energy Tbk.(ADRO) as top picks.Meanwhile, the target price for each of these issuers is IDR 2,300 per share (PER 2020F 14.5x) and IDR 1,350 per share (PER 2020F 12.3x).
According to him, compared to other coal issuers, PTBA and ADRO have ample living reserves, a diversified portfolio, an integrated mining system, and an attractive potential dividend yield.
Meanwhile, PT Samuel Sekuritas Indonesia analyst Dessy Lapagu said that the recovery of coal demand in China could be a driver of coal prices this year.However, he estimates that the growth will not be significant enough to boost coal prices for the rest of this year.
“The coal price for the second semester of 2020 is estimated to be flat and at the level of US $ 52 per ton – US $ 54 per ton or approximately the same as the average price in the second quarter of 2020,” he told Bisnis, Tuesday (11). / 8/2020).
He said that the recovery in demand is not expected to reach the pre-pandemic level of Covid-19.According to him, global coal demand will only recover in 2021, with the assumption that the economic growth of importing countries such as China, India and Japan will grow positively.
Like Thomas, he also still provides neutral recommendations for the coal sector.Meanwhile, the top picks in this sector are ADRO.However, he is still waiting for ADRO’s financial report in the first half of 2020 to calculate the estimated target price.
ADRO prefers from the bottom line which can be helped by the JV [joint venture].Although this year plans to cut production, we see, historically, production growth is quite stable, even during a period when coal prices are booming.So, we see that the strategy to maintain productivity during a pandemic is quite good, he explained.
FIRST PART PERFORMANCE
So far, only BYAN has released its performance in the first half of 2020, and the results are not encouraging.The company’s net profit fell 61.2 percent year on year (yoy) to US $ 69.23 million.This profit is in line with revenue which shrank 18.9 percent to US $ 695.72 million.
Meanwhile, PTBA in the first quarter of 2020 recorded a net profit of IDR 903.24 billion, down 20.57 percent yoy.This pressure on net profit occurred as revenue decreased by 4.01 percent yoy to Rp5.12 trillion.
Meanwhile, ADRO experienced a 17.36 percent decline in net profit during the first quarter of 2020 to US $ 98.17 million.On the other hand, PT Indo Tambangraya Megah Tbk.(ITMG) experienced a 61.2 percent decrease in net profit to US $ 15.4 million.
Although performance is still unclear, listed coal shares are recovering from their lowest positions in March.PTBA for example, last closed at Rp2,100 per share, much higher than the lowest level in March which reached Rp1,485 per share, although it still contracted 9.87 percent.
Meanwhile, ADRO was at the level of Rp1,150 per share and has gained 29.21 percent in the last 3 months.However, compared to the price position at the beginning of the year at the level of Rp1,495 per share, ADRO’s price was still corrected by 26.05 percent.
Meanwhile, ITMG at the level of Rp8,375 per share gained 19.64 percent in the last 3 months.Although still correcting 23.17 percent on a year-to-date basis, ITM’s current share price has far left its lowest position in March at a price of IDR6,025 per share.
Looking at the conditions in 2016, when coal prices reached the current range of US $ 52 per ton, shares of listed coal companies were also under considerable pressure.ITMG at that time fell to a level of IDR 4,810 per share.Meanwhile, PTBA and ADRO fell to Rp861 and Rp449 per share, respectively.
However, coal prices have since recovered quickly to reach the range of US $ 114 in November 2016. The result?The listed coal companies also jumped significantly.PTBA jumped to around IDR 2,700, ADRO to IDR 1,600, and ITMG to IDR 16,000.
However, Dessy Lapagu assessed that the expectation of coal prices to return to the highest level to exceed US $ 100 per ton as in 2016 will be difficult to happen in 2020. This is because the recovery in global demand is expected to last quite a long time.
“For post-recovery coal price, we estimate that it will not be able to return to its highest level at above US $ 100 / ton. We estimate that recovery will take a long time because currently all countries, especially coal importing and exporting countries, are affected,” he said.
Likewise, Thomas even predicted that coal prices would be difficult to rise and would remain in the range of US $ 60 per tonne until 2022. He also cut the projection of ADRO, PTBA and ITMG revenues in 2020 each to US $ 203 million (-31.6 percent of initial projections), IDR1.64 trillion (-43.1 percent), and US $ 33 million (-61.55 percent).
Thomas conveyed that this also led his party to revise the revenue projection for these companies in 2021 and 2022. Nevertheless, in general he still gives a neutral view of the coal sector.