Rising Regulatory Risk For Indonesia Coal Co-UBS

Regulatory risk for Indonesian coal producers has increased since thermal coal prices hit US$172/ton last week, with government considering allocating more coal domestically, UBS says in report. "We think the government will implement a Domestic Market Obligation (DMO) policy in order to meet increased domestic coal demand. This is likely to require producers to allocate 30%-35% of production domestically at below market prices. This could create near-term earnings risk and short-term share price weakness." Notes, however, potentially positive outcomes: Indonesian coal consumption growth to pressure supply and export prices (65%-70% of volume sales). Adds, higher domestic volume allocations could mean lower royalties, currently 13.5% of sales, boding well for earnings.