Indonesia’s Adaro Trims Production Forecast, Cites Bad Economy

Tito Summa Siahaan

Adaro Energy, the country’s second-largest coal producer, has cut its annual production forecast to between 48 million metric tons and 51 million tons of coal, citing difficult market conditions.

The company’s original forecast for the year was 50 million to 53 million tons.

“Despite the challenging market conditions, we remain on track to deliver on our long-term strategies to grow and create value. Our response to the economic downturn is not meant to distract us but to focus on our core business,” said Cameron Tough, Adaro’s head of investor relations.

Adaro’s coal production was 12.05 million tons in the second quarter of this year, bringing first-half production to 23.01 million tons, a slight improvement from the 22.81 million tons of coal produced last year, the company said in its quarterly activities report.

The miner saw a 5.1 percent year-on-year decrease in coal sales during the second quarter, while sales for the first half were 23.96 million tons, down from 24.02 million tons.

Analysts in Jakarta said that the domestic coal industry was expected to face tough times due to the economic slowdown in China and India, the two biggest importers of Indonesian coal. Adaro, however, believes that the long-term fundamentals for coal remain intact.

“We believe the recent weakness in the coal price is driven by excess supply, not the lack of demand,” Tough said.

The company has invested $744 million for the acquisition of coal deposits and a logistics company during the past two and a half years and spent $52.2 million for infrastructure projects in the second quarter to support its growth trajectory.

Reza Priyambadha, an analyst at Indosurya Asset Management, suggested that years of strong demand from India and China resulted in an oversupply of coal.

Reza said the slowing global economy caused major industries, including in China, to cut back on production, reducing demand for fuel from coal and natural gas.

Adaro’s net income will probably increase by 3.6 percent this year, according to Bloomberg data, a year after the company saw its profit more than double to $552 million.

Such a turnaround would also affect heavy-equipment businesses that are linked closely with the mining industry.

United Tractors, the heavy-equipment unit of Astra International, revised its sales target for this year to 8,500 units, down from a previous forecast of 9,500 units.

Shares of Adaro closed unchanged at Rp 1,520 on the Indonesia Stock Exchange on Friday.