This 21% Decline Is This Year’s Most Important Data Yet

If you’re a coal investor, there’s one piece of data you need to see this week. 

New production figures from world-leading exporter Indonesia. 

Data released by the Indonesian government this week showed a huge drop in mine output for the first quarter. With overall coal production falling 21% as compared to the first quarter of 2014. 

That equates to a loss of 27 million tonnes of coal supply. Suggesting that Indonesia’s overall output could fall by around 100 million tonnes this year.

That’s a critical observation for the global coal market. Being the first major drop in output we’ve seen from Indonesia since coal prices started their steep decline in 2011. Up until now, Indonesian production had reportedly been continuing to rise — as miners tried to compensate for lower sale prices by putting out more product.

If a trend toward lower production here holds, it would be a sign that the global coal market is finally capitulating under low prices. And a fall in Indonesian production would be a big step toward getting the market balanced again — given that the nation is by far the world’s largest exporter, especially for key consuming countries like India, China and Japan. 

One point of caution here is that Indonesia’s production statistics are notoriously unreliable. With the numbers often being revised after the fact, due to factors like uncounted output from illegal mines. Indeed, the chairman of the Indonesian Coal Mining Association, Pandu Sjahrir, said he is waiting for confirmation of the government stats before commenting further on the state of Indonesia’s mines.

At the very least, this is a happening to put on our radar screens. Watch for further data coming out of Indonesia to confirm this critical trend.

Here’s to coal, hard reality,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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