On an article in Bisnis Indonesia today, the coal price is facing pressure due to demand reduction from China and India. But does this demand reduction is a material one? Since we can’t find the exact data on how many tones does the demand reduced, we try to look at another data.
The data below is taken from JP Morgan estimation (in million metric tonnes):
Coal Demand & Supply
On average from 2005 – 2008, China’s and India’s demand on coal are 4.43% and 6.62% of total demand respectively. Together they only represent 10.65% of coal total demand. Even though there’s a demand reduction from both countries, we consider it’s just a temporary and doesn’t affect much to the total demand and price. Based on the estimation above, there’s still expected to be a deficit on coal production until 2010.
Implication on Company Analysis
In a cyclical industry like coal, it’s very hard to estimate/forecast the commodity demand and price. Therefore, for company analysis purpose it’s important to look at a company who can operate on a lower cost. Because from the entire variable we took account in analyzing cyclical company, the company’s efficiency is the only variable we can measure and estimate (the demand and price is out of the company control). One more thing that needs to be considered is the mining contract that the company has. Our prediction of company’s cash flow is determined from the future company’s capacity production. The company who has a fixed mining contract in the future is considered to be having a competitive advantage.
Assuming a stable production, from the below data we can conclude that PTBA (PT. Bukit Asam Tbk) is the most efficient and profitable company among its peers.
Gross Margin
Operating Margin
Net Margin
Data Source:
– JP Morgan Global Equity Research (10 Dec 2009)
– Reuters
P.S
Ooops..I shouldn’t post anymore…
fakeconomist 