Time to short Indonesian coal miners?

My favorite short ideas are Adaro (ADRO.JK) and Bumi (BUMI.JK)–Adaro due to the low calorific value of its coal and rich valuation.  And Bumi due high leverage and rich valuation.

Fundamentals for thermal Indonesian coal are weak but Indonesian coal stocks have outperformed the broader markets over the past two months, setting up a short opportunity. Fundamentals are deteriorating due to softening in the major import markets such as China and India and a supply glut at a competitor for coal exports, South Africa. Most important, coal supply is slated to increase in 2012-13 due to post-floods normalization of exports in Australia and Columbia and greater port capacity in Indonesia.

Coal prices in China, the largest importer of thermal coal, are softening due to high inventory levels at the independent power producers and tight credit conditions, which constricts traders.
Coal demand is moderating in India due to the high price of imported coal–please see link to article regarding imported coal sitting at ports despite shortages due to high costs.  Imported coal is >50% more expensive than domestic coal and even blending 10% imported coal can price out these power producers.  Moreover, the recent depreciation of the Rupee versus the Dollar only exacerbates the problem.


Disclaimer: I have no positions in these companies and do not plan to initiate any positions in the next 48 hours.


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