The government introduced the new HPM (index for metals) and HPB (index for coal) prices as selling prices for the export and sales of domestic minerals from Indonesia. This regulation will be effective from 1March 2025. We view this to be an immediate positive for coal miners as the current HBA price trades at a 13% (4% for HBA-2 price) and a premium compared to the ICI price index (current benchmark for coal sales; fig 1). Nonetheless, this implementation will also ensure fairness in the “HBA-based” royalty calculation, aligning it with miners’ selling prices.

On the flip side, the notion of HPB (also for HPM) as a floor price could potentially make Indonesia coal and metals less competitive in the longer term, in our view. While miners can sell above HPB, they cannot sell below it. During upcycle prices, this poses no challenges as HPB, based on historical prices, allows miners to sell at market rates (above HPB prices). In a downcycle, however, HPB may remain stagnant despite falling global prices, potentially making Indonesian coal less competitive.

Overview and details of regulatory changes
The Indonesian government has introduced the new Harga Patokan Mineral (HPM), a derivation from Harga Mineral Acuan (HMA), as a benchmark price for export and domestic metals sales from Indonesia.
The government has introduced new Harga Patokan Batubara (HPB), a derivation from Harga Batubara Acuan (HBA), as a benchmark price for export and sales of domestic coal from Indonesia.

Mandatory adherence to benchmark prices: All coal and metal companies must follow the new benchmark pricing structure for their selling prices. The new benchmark prices (HPM and HPB for minerals and coal, respectively) will also act as a price floor for sales.

More frequent benchmark price adjustments: The HBA will now be determined twice a month (set on the 1st and 15th of each month), rather than once a month, using a formula based on historical selling prices set by the government (Fig. 2).

No change to domestic market obligation (DMO) pricing: The DMO price for coal remains unchanged, maintained at the existing pricing policies for the power generation (PLN for USD70/t) and cement industry (USD90/t).The new ministerial decree overrides previous regulations and will start immediately on 1 March 2025 to ensure uniformity in pricing policies.

Fig. 1: HBA currently trades at a premium to ICI prices

Fig. 2: HBA and HMA formula and update frequency

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Michael Wildon (michael.wildon@verdhana.id) and

Edward Prima (edward.prima@verdhana.id)