* Govt official expects country to produce 419 mln tonnes in 2016
* Says will drop to 409 mln T next year
* Decline will come as smaller miners pare output
* Analyst says Indonesia coal exports to fall in 2016 (Adds demand outlook from state power utility, analyst comment)
By Fergus Jensen
NUSA DUA, Indonesia, May 30 (Reuters) - Indonesia, the world’s top thermal coal exporter, expects its coal production to edge down in 2017, as smaller miners cut output due to a plunge in prices for the commodity.
Reduced output from the Southeast Asian nation could provide some support to prices that hit their lowest in 10 years earlier in 2016 due to slowing demand, new supply from South America and depressed oil prices.
“It’s natural selection. The small mines that are not efficient will not be strong and will die,” Bambang Gatot, director-general of coal and minerals, told reporters at an industry event.
Smaller miners are expected to find it difficult to market their coal and “will face obstacles”, Gatot said.
Indonesia will churn out 419 million tonnes of coal this year and 409 million tonnes in 2017, Gatot said. That compares with “above 400 million” in 2015, he added.
Government statements in January had said that Indonesia produced 392 million tonnes of coal last year.
Meanwhile, Fabio Gabrieli, a trade analyst at Mercuria Energy Trading, said Indonesia’s coal exports could drop by 22 million tonnes this year, hit by waning appetite in key market India. That country is looking to buy higher quality coal more cheaply from sources such as Australia, South Africa and Colombia.
According to data presented by Gabrieli, Indonesia shipped 350 million tonnes of thermal coal in 2015, a significant portion of the total 880 million tonnes of seaborne thermal coal traded last year.
Global thermal coal trade is expected to drop by a further 30 million tonnes in 2016, Gabrieli added. That would follow a 45-million tonne fall in 2015.
On the sidelines of the event in Nusa Dua on the island of Bali, an official at the country’s state electricity firm told Reuters that demand for coal at Indonesian power stations would increase by around 7.5 percent to 86 million tonnes in 2017 after a 13 percent increase to 80 million tonnes this year. (Reporting by Fergus Jensen; Writing by Eveline Danubrata; Editing by Joseph Radford)