Ban on Indonesian coal exports to have little impact on Noble

BT today ran a report on a proposed ban on Indonesian coal exports with calorific value of less than 5,700 kcal that is currently being drafted by the Ministry of Energy and Mineral Resources. The report stated that the new regulation is likely to be signed this month and would call for local processing of raw materials to upgrade the heating values or to blend it with high-grade fuel by 2014. It is unclear whether this would apply retroactively to forward sales beyond 2014.

Noble has coal exposure in Indonesia
Of the companies under the Supply Chain sector, Noble Group is involved in exporting c.15m MT of Indonesian coal and has a marketing agreement with Berau Coal. Berau's coal has calorific value of 5,100-5,500 kcal, which falls below the minimum threshold. While Noble may have the capability of upgrading its Indonesian coal calorific value above 5,700 kcal, it is unclear whether its export destinations would seek alternatives due to the higher prices.

Worst cast scenario: 4.8-5.1% impact on gross profit
Assuming 4% margin, we estimate that Noble's entire Indonesian coal exports account for c.10-11% of its Energy segment gross profit and c.4.8-5.1% of its FY11F-14F consolidated gross profit. Hence, any potential impact would be small. However, we should also point out that the regulation would likewise reduce the global supply of thermal coal, which in turn would lift Noble's coal revenues elsewhere (i.e. Donaldson Coal). At worst, Noble should be able to shift its thermal coal outsourcing from Australia, although probably with slightly different coal specifications.