COAL DEMAND CONTINUES TO RISE

Indonesian Coal Mining Association (APBI) predicted that coal demand in both the domestic and export market will continue to increase, along with the increasing coal consumption. Moreover, coal will replace natural gas as primary fuel for producing electricity in Southeast Asia (ASEAN) as energy consumption in this region is estimated to double in the next decades, according to reports from the International Energy Agency (IEA).

The ten ASEAN member countries, whose growth of energy demand is twice the global average, will replace 49% of its energy with coal starting in 2035 or only a 31% increase in 2011. The percentage of gas usage reportedly will drop to 29% from 44%. According to IEA, as far as it is more profitable when using coal instead of gas, the use of energy in Southeast Asia will be supported by Indonesia as an exporter of hot coal which production will double by 2035.

However, APBI Chairman, BOB Kamandanu, in Jakarta (Wednesday, October 2), reminded that high demand for coal in Indonesia should be coupled with clean energy campaign which is more intense in the world. Bob said that the US government some time ago called for the need of low-emission coal energy. China also called for the same thing, including planned to ban import to lo-grade coal that produces high emissions.

However, he stated that there is no certainty yet on the ban on imports of low-grade coal (low-rank coal) to China. He insisted that coal entrepreneur is not afraid if the import ban is implemented. If the ban was imposed, exports will be diverted to other countries such as Pakistan, Sri Lanka, India, and other ASEAN countries. He is optimistic that Indonesia coal producers can explore the markets outside China. He explained that Indonesia’s coal export to China reached 90 million tons, half of which is dominated by low-grade coal.

Bob said that coal has been blamed as one of the sources of global emissions, so it must be taken seriously by the government and coal businesses in order to reduce emissions which are increasing. United Stated is reducing coal consumption. Even, the country plan to prohibit banks to help finance coal power plants, which will certainly affect the coal business. “The need for coal is increasing, but we must heed the call of the consumer countries”, he said.

Bob reported that citing data from the British Petroleum Statistical Review of World Energy 2013, Indonesian coal production rose by 273% in the last ten years. Currently, Indonesia produced 6.2% of total global production. This means that Indonesia occupies the third highest position in the world as a coal producer. He said that coal contributed about 67% of total energy production in Indonesia, followed by gas at 18% and oil at 13%. The three have a 32%-33% share of energy production in the past 10 years.

He said that Indonesian coal exports rose 21% in the first 5 months of this year. Data from the Ministry of Trade mentioned that the volume of coal exports during January-May reached 163,900.000 metric tons. Currently, the abundant supply of coal causes coal prices to fall. Coal supply is still abundant, because producer countries, besides Indonesia, are increasing production. 

Business News - October 4, 2013

AWAITING FOR THE FED’S FINAL DECISION ON TAPPERING OFF PLAN

The Fed’s shocking decision not reduce stimulus had revitalized the moneymarket globally. Governor of the Fed Ben Bernanke stated last Thursday [19/9] that the bank was still continuing buying till end of this year. But all depended on economic growth in the future. Besides, Bernanke stressed that the Fed had no plan to increase rate for the short period.

The following were the impact of the Fed’s shocking decision : At the stockmarket and moneymarket, value of Australian Dollar, Euro and Pound in England jumped up steeply, while greenbuck slumped because it indirectly injected strength to the emerging markets to rally over the next few years ahead. Market of emerging nations were getting highly positive sentiment. The public was not expecting that the Fed would generate anxiety, in the next few weeks their action would mean positive for the moneymarket and stockmarket.

The positive impact also spread out to Southeast Asia. IHSG increased by 7% while index of stockmarket of the Philippines rose by 3.6%, while Rupiah, Malaysian Ringgit and Korean Won strengthened by 1% - 2% against USD. Investors aggressively increased risk of their fundamental economy.

The stockmarket in Asia like index of Nikkei strengthened by 1.8%, index of Shanghai inched up by 0.2% but index of Kospi inched down by 1.1%, index of Hang Seng increased by 1.7%, index of Thai Set increased by 3.2%. in case of gold for contract of December rose by 4.3% to USD 1,364 per troy ounce. Meanwhile price of silver rose by 7.6% to USD 23.3 per ons, but index of Dollar DXY dropped to its lowest level since early this ear.

Positive sentiment also came from the candidate successor of Ben Bernanke in January 2014. As Laurence Summers, a close friend of Obama, resigned as candidate, competition would be easies. Another candidate, Janet Yellen who was Bernanke’s deputy, would make things more open. Yellen, with her competence comparable to Bernanke would be advantageous to stockmarkets of the developing countries, and she who was supported by Wall Street, would continue Ben Bernanke’s program.

Other possibilities according to senior forex analyst at Saxo Capital Markets Jeffrey Halley was that aggressive rally on currencies was only short-term process because it triggered other central banks to devaluate their currencies; the objective was to maintain comparative advantage.

The G 10 group must come up with more accommodative policy to minimize differences in currencies. The world was on the brink of currency war if the Fed did not reduce stimulus by October of December next. Surprise by the Fed in times of anxiety of Yen’s weakening had given Japanese exporters unfair advantage. Japan was criticized by G-20 in their meeting on April last.

The Fed’s policy would support strengthening process of Yen. On the first day the Australian Dollar rise by 0.95 USD, since it was extremely under pressure since June, while Poundsterling jumped up by around USD 1.6 to highest level since January. Euro reached highest level since February, increasing by USD 1.35 per USD.

The USD did not flop against Yen as much as against other currencies. On Wednesday last week [25/9] before the Fed exercised their policy, USD strengthened to 97.75 but slumped again to 98.10. This was influenced by the Bank of Japan who balanced the Fed’s policy. A joke bursted out saying “Thank you Mr Bernanke” by some investors at the Indonesia stockmarket. Investors had reason to be happy because the Fed decided to inject stimulus of USD 85 billion every month.

The stockmarket had invigorated stockmarkets all over the world, including Indonesia. IHSG rose by 4.65% to become 4,670.7 on that day, foreign investors made net byuy of Rp1.05 trillion from BEI. IHSG upturn was also followed by Rupiah strengthening. Rupiah managed to bolster up to Rp11,424 per USD.

One thing was sure the Fed’s decision shocked many investors, because previously marketplayers predicted the Fed would reduce stimulus by USD 10 billion to USD 15 billion of the total USD 65 billion. If this was done, the stockmarket and moneymarket would be stormy once more.

The predicted was reasonable, because by the time Bernanke reduced bond buying or Quantitative Easing on May 22 last, investors instantly panicked. They rushed to release by investors was clearly seen in nearly all stocmarkets of the world, BEI being no exception.

Through June 2013 there had been Rp20.7 trillion foreign net sell at the stockmarket. Furthermore for 2 weeks in July, there was posted net sell of Rp4.5 trillion and IHSG sank to around 4,100 – and yet for over 6 months IHSG had been well settled at above 5,000. The foreign net sell had also caused Rupiah value to fop. Since mid August to September 17 2013 Rupiah had nosed dived to Rp11 thousand per USD.

It was not only stocmarket and moneymarket which were shaken in Indonesia. The Fed’s plan also made regional currencies to slump. India’s Rupee, Korea’s Won, the Philippines Peso, Taiwan’ Dollar and Malaysian Ringgit again fell. It was understandable that the stocmarket and moneymarket in Asia were shaken. As know, through 2009 to 2012 fund from QE phase I, II, III in the USA flowed to the emerging nations including Indonesia, resulting in stockmarket and SUN bonds to be so activated.

Now again the Fed launched the monetary stimulus program. This decision means fortune to Indonesia’s economy, at least in one to four months ahead. Such was some analyst viewpoint. It was true that the Fed’s decision had made price of shares and Rupiah to strengthen; but remember it was not because Indonesia macro-economy had turned better.

Today Indonesia’s economy was being tormented by four deficits at the same time : deficit in trade balance, deficit in current transaction, deficit in payment balance and deficit in primary APBN Budget. Through Semester I-2013 trade balance posted deficit of USD 3.31 billion and by Quarter II 2013 deficit of current transaction had come to USD 9.8 billion or 4.4% of GDP.

This means that Indonesia’s economy was still vulnerable to capital flight in high amount the way it happened last June and July. Moreover Bernanke signaled that reduction of stimulus might happen any moment. It was true that the reason for the Fed to suspend stimulus was because data of US economy was not so good. Once the Fed revised US growth was predicted to be only 2.9%-3.1% against the previous 3.0%-3.5%.

However, it did not mean that the Fed cancelled their plan to axe stimulus. If data showed economic prospect was better, the Fed might take action this week. Naturally, Bernanke’s statement was not to be underestimated, the way the Government of RI under estimated before. The point was that the Government must use the waiting time as momentum to improve national fundamental economy. The Government and BI must not waste time.

Tappering off policy by the Fed was bound to happen soon or late. Most likely it would be early 2014 and end in September 2014. When QE III stopped, the Freed planned to increase interest rate in Semester II 2015. Therefore the Government of RI and BI should make the best of the momentum. BI could consolidate forex reserves using swap agreement as instrument and to increase reserves in USD.

In addition to the above there was possibility that [BI Rate] could be increased by around 25 basic point to become 7.5% in Quarter 4 of 2013. Portofolio investment could also be expected to return to Indonesia. In short, now the Government and BI could take a breath for a moment and ready to anticipate the execution of the Fed’s Tappering Off plan.

The Government’s Four economic package Plan was also expected to be implemented soon to anticipate the Tappering Off Plan, especially to enable the domestic industry not to be dependent on imported raw materials.

The First Package to improve balance of current transaction and to Support Rupiah value.

Step One: to promote export, and tax reduction for labor-intensive based export commodities with export at least 30% of total production and to reduce import oil and gas by promoting use of biodiesel. Step two to stipulate import of luxurious goods from the present 75% to 125%-150%. Step Three: to improve export of mineral products and to ease quota.

The Second Package :

To maintain economic growth and to maintain fiscal deficit in the range of 2.38% and increase tax reduction for labor intensive industries.

The Third Package:

To maintain people’s purchasing power and control inflation level.

The Fourth Package :

To spur on investments. So the conclusion was Although Bernanke had stated not to exercise QE III this time it was not impossible that the plan would be exercised next year. Perhaps not totally but gradually in line with the US economic development.

Therefore Indonesia’s economy, particularly in the financial sector, must stand by to anticipate any possibility as chain effect of US policy. Moreover one of the factors accused by the financial and monetary authorities as the cause of Rupiah downturn was the US economic policy.

Business News - October 2, 2013

RUPIAH AND IHSG INCHING UP TO GREEN ZONE

The tight money policy adopted by BI which was OK’d by the Government was believed to better investors perception. Increase of BI rate and application of LTV for KPR mortgage and automotive credit was believed to put brakes on credit growth.

Furthermore it would reduce production and end up in import slowdown of raw materials and auxiliary materials for industry. On the other hand, it would reduce deficit in current transaction. Accordingly inflation pressures from import would be reduced, while reduced public consumption would ease inflation.

The end result would be betterment of current transaction and inflation could be controlled. Hopefully market players would  react positively if the scenario would run well. It would strengthen Rupiah exchange rate value and enhance stock buyers’ zest.

The Moneymarket

Rupiah exchange rate value against USD at the interbank spot market Jakarta on Friday [27/9] strengthened. Sentiment came from postponement of Tapering off by the Fed till December 2013, which was the potential of Rupiah strengthening.

One if the High Executives of the Fed of Richmond, Jeffrey Lacker signaled that acceleration of US economic growth would not happen in the near future. Therefore it might be concluded that it would be hard for the Fed to do tapering off next October. This was a chance for Rupiah to strengthen to the level of Rp11,400-Rp11,500 per USD.

Furthermore data of US GDP which was released on Thursday [26/9] slumped down way below the estimated 2.7% to become 2.5%. supposedly this data was able to jack up Rupiah performance this weekend. Besides, the market would also be influenced by data of year-on-year inflation in Japan. If this level was low enough against the previously published 0.4% it was still way below the Abenomic policy target.

Most probably there would be more aggressive stimulus of the Bank of Japan to make sure that inflation rate would meet target. With more aggressive stimulus from Japan, supposedly it also had positive there was no new sentiment expect the strategic plan to control deficit current transaction and inflation.

Other positive catalyst was the potential to continue negotiation between Iran’s new President Hasan Rohani with the West to end embargo and nuclear program. The development would be the market’s focus of attention as it would enhance optimism to cool down political tension in the Middle East.

In the affirmative case it would bring down price of oil so it would heal the condition of trade deficit in Indonesia. Other catalyst to watch on was voting by the US Congress in regard to elevation of debt ceiling and US budget resolution to prevent closing of budget by their Government.

For information, Rupiah value against USD last Thursday [26/9] was closed to strengthen by 30 points [0.26%] to the position of Rp11,450. Meanwhile BI set Rupiah mid-rate at Rp11,573 per USD. Strengthening of Rupiah happened when USD value weakened against most of Asia Pacific currencies.

The notably insignificant strengthening of Rupiah was market reaction to suspended tapering off by the Fed. This tapering off of monetary stimulus was said to start next year till September 2014. However, there was negative sentiment at home which could influence rupiah movement, i..e. the Government having the obligation to pay debt due in the near future.

Payment of overseas debt due by the Government would increase demand for USD. Rising demand for USD made Rupiah flop. Besides, demand for USD for payment of debt of the private sector influenced Rupiah movement. In responds to Rupiah fluctuation, BI adopted a policy whereby BI had to increase BI rate by up to 150 basic points to 7.25% as deficit in current transaction and inflation had become serious national economy.

The swelling deficit in current transaction and soaring inflation since mid 2013, finally generated various expectations in the market which finally made Rupiah depreciated. BI was aware that the Government was not the only one who could solve problems. Hence, from June to September 2013, meeting of the Board of Governors of BI decided to increase policy rate to 150 basic points to 7.25%. BI did not only apply this one single monetary instrument but also a policy mix.

At this credit rate level, BI was able to control domestic demand which would eventually maintain stability of Rupiah value against USD. BI rate for controlling inflation and domestic demand, which would finally contract current account deficit.

Increase of BI rate would not automatically drum up foreign and domestic investment if Indonesia’s economic climate was still full of risk. So BI realized there should be coordination with the Government because monetary strategy alone would never crack economic problems today.

Although some of Asian currencies had recovered from last month’s turbulence, Rupiah never seem to rise and remained to slump. Deficit in current transaction and inflation were not supportive to Rupiah strengthening. There was a little increase in trust, but no outcome of increased liquidity. The market was reacting more positively to Rupiah after BI increased benchmark rate and the Government trying to reduce subsidy for oil.

Ever since there was growing anxiety of stimulus reduction by the Fed, capital kept flowing out of Indonesia. Pressures on rupiah kept increasing as deficit in current transaction kept widening. The market was really anxious about when liquidity would be normalized. Soon there after Rupiah would be more stable. However there was some structural issue to be tackle before better mid term projection could be seen.

However it seemed that policy makers were not too motivated to strengthen Rupiah. With high inflation expectation, the Government and BI needed to let Rupiah being depreciated in the long run to remain competitive. It was noteworthy that if Rupiah slightly strengthened it would be hard to reduce deficit in current transaction.

The opportunity for Rupiah to strengthen also came from BUMN circles. For the time being the Government permitted stated owned companies [BUMN] including Pertamina to do hedging of some foreign currencies considering Rupiah steep downturn recently. This policy was in reverse to the policy of 2008, which forbade BUMN to do such practices because it was rated as disadvantage to the state.

The hedging policy by BUMN was temporary, until Rupiah was back on its feet again. As know, Rupiah was constantly weakening this year – being depreciated by 16% making it the worst performing Asian currency. Rupiah weakening was on account of deficit in current transaction which swelled, particularly on account of high import of oil fuel. This Ministry of Finance estimated Pertamina would need USD 150 million on the average for oil importing.

In the future, including this coming week, Rupiah was still consolidating above Rp11,000 per USD. The only thing was, after the Fed postponed Tapering Off Plan, there was opportunity for Rupiah to strengthen to around Ro11,350.- Ro11,450.- per USD this week. The optimism was strengthened by tender outcome of SUN Promissory Notes which was over-subscribed.

The continued monetary stimulus by the Fed seemed to have its impact on SUN bond auction was over-subscribed more than 3 times at the value of Rp25.78 trillion. Investor’s zest to buy bonds was still high after continued stimulus by the Fed.

The Government absorbed fund of Rp12 trillion of tender, exceeding the indicative target set at Rp8 trillion. The high total demand was also influenced by supply of SUN which was thinning out. Toward end of year the Government only had to absorb fund of Rp65.5 trillion to meet target of State Promissory Notes [SBN] of 2013. Of the total need, by estimate only around Rp40 trillion were to be obtained from regular auction. The rest, around Rp20 trillion was to be obtained from Indonesia Retail Bond [ORI] and Rp5.5 trillion from release of domestic forex SUN.

Rupiah had the potential to strengthen this week by negative sentiment on the performance of the US Government cashbox. International Rating Agency Moody’s Investors Service warned the US Congress and White House that if they could not troubleshoot the cashflow problem, it would not only stop Government activities but would trigger unrest in the world’s moneymarket.

According to Moody’s last Wednesday [25/9] there was no intention to lower America's debt rating, they were thinking more about the impact on the global market. Moody’s statement referred to America’s cash box in mid-October 2013. The US Minister of finance Jack Lew had sent a letter to US Congress in which he stated: To carry on with state administration and pay all obligations, the US Government needed new debt; which was because state’s income from tax was not sufficient. Therefore, mandate of the US Congress was necessary to approve borrowing to support Government expenditure.

Year after year America kept increasing their debt, especially since the days of Ronal Reagan who was anti tax. President Barrack Obama intended to reverse the process by increasing income from tax. However the proposition was constantly objected by the US Congress which was dominated by the Republicans. According the Lew, the present debt ceiling which was presently USD 16.7 trillion was no longer adequate. If debt was not increased, America’s cash would remain only USD 50 billion left by mid October, which was only sufficient for financing administration for three short days.

Chairman of US Parliament John Boehner [Republican] stated that the US Congress was ready to approve elevation of debt ceiling. President Obama stated that America needed additional expenditure of USD 700 billion through 2013inclusive of health program the low class people. However, increased debt must be compensated with downpressing of expenditure especially in health programs, Obama was not willing to do so because it was his promise during Presidential campaign to his supporters.

The Capital Market

Index of IHSG rose by 30 points thanks to investors chasing cheap shares. Although lack of positive sentiment, acts of buying continued to happen. During per-opening session last week end [27/9], IHSG strengthened by 30.871 points [0.70%] to the level of 4,436,764 while index of LQ rose by 7.873 points [1.07%] to the level of 743.376.

To open transaction [27/9] IHSG soared up by 4.449 points [0.94%] to the level of 4,447.342. Index of LQ45 rose by 9.352 points [1.27%] to the level of 744.855. Cheap shares were hunted by investors. Nearly all secroral indices at the stock hall managed to strengthen.

Previously IHSG was negative for 5 consecutive days. IHSG once strengthened, but heightened act of profit taking forced index to fall into the red zone. And yet last Thursday [26/9] . Wallstreet managed to strengthen after being corrected for 5 consecutive days. Positive growth was in new employment data, but the problem of limited cash limited strengthening process this time.

Unemployment level in America dropped to its lowest level in the past 6 years in the report of US Labor Department. Other data which were positive were housing and price of consumer goods. If the data was good, the unemployment data to be reported next month could also be positive.

During closing session last Thursday [26/9], index of Dow Jones increased by 55.04 points [0.36%] to the level of 15,328.30. Index of Standard & Poor’s 500 strengthened by 5.90 points [0.35%] to the level of 1,698.67. Index of Composite Nasdaq increased by 26.33 points [0.70%] to the level of 3,787.43.

Investors would have to face weekly unemployment data. Economists unemployment claim increased to become 327 thousand against the previous week at 309 thousand. In addition to that final revised data of US economic growth would also be released. US economic growth was predicted to grow by 2.7% against the previous estimate of 2.5%. In addition to that data of mortgage sales in August and revised data of employment growth would also be released.

Meanwhile stockmarkets in Asia were moving the mixed way. Mixed sentiment of global stockmarkets forced players of the regional stockmarket be cautious in making transactions. Index of Composite Shanghai dropped by 2.34 points [0.11%] to the level of 2,153.47. Index of Hang Seng increased by 46.06 points [0.20%] to the level of 23,171.09. Index of Nikkei 225 reduced by 26.03 points [0.18%] to the level of 14,772.49. Index of Straits Times increased by 20.03 points [0.63%] to the level of 3,214.34.

As footnote, during transaction last Thursday [26/9] IHSG was closed to inch down by 0.874 points [0.20%] to the level of 4,405.893. Meanwhile index of LQ45 was closed to reduce by 1.533 points [0.21%] to the level of 735.503. Second tier shares rose highest today, in the afternoon being subject to act of selling. Some premium shares could still strengthen, but failed to bring index to positive zone.

Players of the regional market was still waiting for the latest new from the Fed’s stimulus and Stated Budget of the US Government. This made the regional stockmarket to end up the mixed way.

Positive sentiment of the stockmarket this week and the following came from the report of eminent performance by the end of September 2013. In spite of mounting pressures due to weakening economic performance, it was believed not to downpress company’s performance significantly. So to anticipate all possibilities, all sectoral shares expect mining and construction, would be investors’ target in the next three to four weeks.

Business News - October 2, 2013