Coal mining jobs at risk with price drop

TENGGARONG, EAST KALIMANTAN: Hundreds of thousands of people in the coal mining industry in East Kalimantan province may be at risk of losing their jobs as the price of the commodity has fallen in recent months, according to The Jakarta Globe Report.

Suriansyah, head of the labour office at Kutai Kertanegara district in East Kalimantan, said on Wednesday that some coal miners operating in various districts in East Kalimantan province are expecting massive layoffs in the coming weeks.

East Kalimantan is home to 14 districts — including Balikpapan, Bontang and Tarakan — that are rich in natural resources such as oil, gas and coal. Selling prices at some of the biggest coal miners have fallen about a third from year-ago levels.

Suriansyah said that the falling price of coal in recent months has been a major blow to small-scale coal miners.

He said that his office was now taking initiatives to talk with coal miners operating in three districts: Balikpapan, Bontang and Tarakan. Without elaborating, he said that government officials in 11 other districts have taken similar measures to cope with falling coal prices.

“The decline in coal prices has affected the operations of small-scale coal miners,” Suriansyah said.

There are 450 coal miners operating in Kutai Kertanegara district alone, he said, and they employ more than 40,000 workers. Some coal miners have already begun firing workers, he said, without identifying the small operators.

Ichwansyah, a government official at the labour ministry in East Kalimantan, said that mining companies in the province have almost 6,000 labourers who work directly in the mines this year, up from around 4,200 last year. Workers in coal-mining related and supporting businesses totaled 300,000 people this year.

“Indeed, the number of labourers employed directly by coal mining is small. But labourers that work in the coal mining related business is huge. If the coal miners collapse, automatically, the supporting businesses will close … and no more jobs for labourers,” Ichwansyah said.

Observers noted that rising unemployment may affect social issues, such as an increase in criminal activity and violence. Nationwide, the unemployment rate is 6.3 percent, a record low, according to government data as of February.

The country’s big coal miners include Bumi Resouces, Harum Energy and Adaro Energy. Bumi Resources and Harum have mining facilities in Kalimantan, while Adaro has big mining plants in Sumatra. Officials at Adaro weren’t available to comment about their operations in Sumatra.

Analysts have said that coal miners might reduce production to help alleviate the drop in coal prices, but the nation’s biggest companies have made no plans.

Kenneth Allan, a director at Borneo Lumbung Energi & Metal, a coal miner affiliated with Bumi Resources, said that big coal miners have not been affected by falling prices.

“We are actually increasing the number of workers,” Allan told the Jakarta Globe on Wednesday. “We are still on expansion and we are bringing in more equipment to increase production, thus we will need more people to work,

According to the company’s annual report, at the end of 2011, Borneo hired a total of 2,963 people, of which 2,889 work at its mining operations in Kohong and Telakon on Kalimantan.

Allan did not elaborate how many people they plan to hire this year.

The association of coal miners in Samarinda — the capital of East Kalimantan — has said that falling coal prices have been a major concern for miners in Indonesia.

Eko Prayitno, the group’s chairman, said on Wednesday in Samarinda that the coal price is hitting $80 per metric ton, a low level.

Prices have been falling globally because of a supply glut in the United States and a slowdown in use from China, where the economy has been slowing down. Declining orders from nations such as those in Europe has caused Chinese factories to curb production, curtailing use of power from coal-fueled electricity plants.

The benchmark coal price fell to $87.56 per ton in July from $96.65 tons last year, Eko said.

The falling price of coal in Kalimantan has taken its toll on the net income of several coal miners including Bumi Resources and Borneo Lumbung.

Borneo Lumbung reported its first-half net income dropped 59 percent to $39 million against the same period last year, while revenue fell 6 percent to $320.77 million, it said in a statement to the Indonesia Stock Exchange on Wednesday.

Borneo Lumbung sells most of its coal to steel manufacturers in Asia, with China as its biggest market followed by Taiwan and Japan.

“It was caused mostly by the lower coal prices because of the global price decline,” Borneo Lumbung’s Allan said.

He said that the average selling price at Borneo Lumbung fell to $180 per ton in the first half from $250 per ton a year earlier. Sales volume increased slightly to 1.7 million tons in the first half from 1.6 million tons a year earlier, Allan said.

Bumi Resources, Indonesia’s largest thermal coal producer, posted on Sunday a $334.1 million loss in the first half of this year, compared to a $226.7 million profit in the same period a year earlier. The company produced 32.5 million tons of coal, up 8.6 percent. The company is aiming to produce 75 million tons of coal this year, the company said early this week.

Analysts said that many Indonesian coal miners are facing difficult times ahead as years of strong production have resulted in a supply excess aggravated by a downswing in commodity prices.

Eko said that a possible slowing down in the global economy including China and India, two of the biggest buyers of the country’s coal, has aggravated the pains of many small coal producers in East Kalimantan, not to mention the possible influx of coal from Africa and the United States that is entering the Asian market.

Eko said that several coal producers are now waiting for the price to recover. Higher prices would be an immediate boon to struggling miners.

“The decline in price is temporary, so it should come back to normal,” said Eko.

Eko said that his association is helping the government by convincing its members not to institute massive layoffs, but “there is no guarantee.”

Coal miners accounted for around 30 percent of gross domestic product in East Kalimantan, and consequently, massive layoffs might lead to a major contraction in the province’s economy, Eko said.

Indonesia has proven coal reserves of 20.8 billion tons.

The nation, which has the biggest economy in Southeast Asia, also relies on other commodities such as copper, iron ore, nickel and gold for its exports. Prices for some of those commodities have also fallen from recent highs.

The government forecasts the economy this year growing 6.5 percent, the same rate as in 2011. Growth is the second fastest among the Group of 20 nations, after China, this year.

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