(Minews) - The coal industry always seems to be looking for a white knight to rescue it from some crisis, and it is perhaps ironic that Indonesia, the world's largest exporter, is the next great hope that is to save global miners from the current supply glut.
The theory is that as Indonesia ramps up domestic coal-fired power generation, it will rotate its exports to meet local demand, thereby removing millions of tonnes from the sea-borne market and bringing it back into balance.
This sounds fantastic to coal producers, particularly those in Australia, South Africa and Russia, who are looking to boost exports into Asian markets.
But white knights have had a somewhat chequered recent history for coal producers and traders.
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China was once supposed to be the huge market that would suck up every ton of coal that could be mined, and for a brief few years it looked like it might just work.
Chinese imports rose steadily from 2009 onwards, and by 2011, some forecasters were saying the world's biggest producer and consumer of coal would import a billion tonnes a year.
This heroic figure looks laughable now, given that Chinese imports are down almost 40 percent in the first five months of the year, a trend that most analysts expect to continue as Beijing works to restrict pollution and rotate the economy away from heavy industry.
"Peak coal" in China was a fairly common term being bandied around at Coaltrans Asia, the industry's largest annual gathering, held this week on the Indonesian island of Bali.
INDIA IMPORT GROWTH NOT ASSURED
The next big hope for coal was India, based on the view that its demand was rising strongly and state-owned mining giant Coal India would be unable to boost output as much as hoped.
So far this has largely held true, with imports rising just over a third to 242.2 million tonnes in the fiscal year through March 2015.
However, the new Indian government seems determined to boost domestic output and cut imports, setting Coal India a target of doubling its output to 1 billion tonnes by 2020.
While this is most likely an unachievable target, the risk is that Coal India surprises to the upside and India's import demand doesn't rise as much as coal miners hope.
INDONESIA RIDES ...
So, is there any validity in putting Indonesia forward as the next knight in shining armor for the coal industry?
The basis for the optimistic view is the new government's plan to increase power generation by 35 gigawatts within the next five years, with at least 20 of those gigawatts being coal-fired.
An additional 35 gigawatts is planned for the following five years, which would add a total of 70 gigawatts to the country's existing 47 gigawatts of capacity.
If the first phase is delivered, it would require as much as another 70 million tonnes of coal a year, with roughly the same amount again needed for the second phase.
This would remove up to 140 million tonnes from Indonesia's annual exports - about 360 million tonnes last year - in theory reducing sea-borne supply more than enough to offset the loss of import demand in China.
BUT CAN IT DELIVER?
The big question is whether Indonesia can actually deliver such a massive power-plant building program.
The track record isn't encouraging. A fast-track program earlier this decade only delivered 10 percent of planned capacity additions, although a similar, smaller-scale plan over 2004-2006 did reach 90 percent of its target.
Indonesia is trying to do things differently this time, inviting independent power producers to build plants and not just relying on state-owned generator Perusahaan Listrik Negara or PLN.
The chairman of the Indonesian Coal Mining Association, Pandu Sjahrir, told the Coaltrans event that the market was expecting that only 12 of the 35 gigawatts would be delivered by 2020, but he was hopeful of a better performance.
At any rate, this white knight looks like he will take some time to put on his armor and get mounted to ride to the rescue.
The other issue is that much of the coal that will leave the export market is low rank, and this type of fuel is increasingly finding fewer buyers given that more of it needs to be burned than if higher quality coal is used.
But Indonesia is still likely to help the global coal market, as its miners are far more likely to cut output in response to the current low prices.
The general feeling at Coaltrans was that prices are finally near a bottom after a four-year downtrend that had the Asian benchmark Newcastle coal index slumping to $58.11 a ton last week, down some 58 percent from its post-2008 recession peak reached in February 2011.
But even if prices do stabilize, chances are that Indonesian miners may continue to idle output rather than continue mining for miniscule returns.
Indonesian output was down 21 percent in the first quarter of this year to 97 million tonnes, with further declines expected for the rest of 2015.
Overall, the best hope for coal miners is Indonesia, but more because it's the country most likely to cut output to balance the market, at least in the short term.
In the longer term, the Southeast Asian nation's power plant plans may well see it give back its status as the world's top coal exporter to Australia, but this will likely take longer than anticipated.
