Major coal producer Adaro Energy has announced that it has lowered its production target from 56-58 million tons previously to 54-56 million tons to mitigate oversupply that led to plunging commodity prices and cut the company’s profit by 31 percent on a yearly basis.
According to its first-half financial statement, the company posted a 17 percent decline in its revenue from US$1.69 billion it registered in 2014 to $1.4 billion this year. Its net profit was cut deeper, down by around 31 percent from $167.51 million in the first six months of last year to $119.08 million in the corresponding period this year.
The publicly listed company said in a published statement that the dwindling financial performance was due to difficult coal market conditions buffeted by slower demand growth and abundant supply. The company’s sales volume and production decreased by 6 percent and 7 percent to 26.6 million tons and 25.9 million tons, respectively.
The company said that it had decided to trim its initial production target in anticipation of the lingering challenges in the coal market in the near-term.
Adaro’s president director and CEO Garibaldi Thohir said his company would focus on cost discipline, saying he was upbeat that coal would continue to be the most efficient and low cost fuel for electricity generation and therefore crucial to support economic growth.
“Although the short term outlook remains challenging due to slower demand growth and macroeconomic uncertainty, we believe that demand for coal, in particular from Indonesia, South Asia and Southeast Asia, will play a key role in the future.
“We continue to develop the non-coal mining parts of our business and improve their contribution to Adaro to better withstand the cyclical nature of the coal market,” Garibaldi added.
“We are on track in our move downstream to power and to create maximum value from Indonesian coal,” he said.
Demand from China, the world’s largest consumer of raw materials, fell by 25 million tons, or 31 percent, to 54 million tons in the first half, the biggest drop since at least 2009. While Indian imports rose by 23 million tons, or 35 percent, to 88 million tons in the six-month period, surging domestic output probably means demand will shrink, Bloomberg reported last week.
Meanwhile, the world’s five largest exporters increased sales in the first half of this year, with combined shipments from Indonesia, Australia, Russia, Colombia and South Africa gaining 0.1 percent to 343 million tons, government data and estimates from Bloomberg Intelligence show.
Australia’s Newcastle coal, an Asian benchmark, has slumped to about $60 a ton from as much as $136.30 in early 2011. Adaro’s average selling price (ASP) declined by 13 percent year over year as coal prices remained under pressure, according to the company’s documentation.
Adaro’s exports, which account for more than 70 percent of its total sales, declined by around 16 percent annually to $1.03 billion.
Adaro is currently working on three power plant projects, two of which — with total investment expected to hit around $4.55 billion — are expected to have financial closure in October before entering the construction phase, as the company attempted to intensify business diversification amid unfavorable prices. The two projects are a 2×1000 megawatt (MW) power plant in Batang, Central Java, and a 2×100 MW mine-mouth power plant in Tabalong, South Kalimantan.
Ariyanto Kurniawan from Mandiri Sekuritas said the firm’s financial performance was below expectations, making only 64 to 70 percent of analysts’ predictions.
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