Thermal coal prices in Asia are likely to rise in the short term due to supply uncertainties from Indonesia and reduced production in China. This situation is influenced by demand from countries such as Japan and South Korea, which have turned to coal as an energy source due to regional tensions.
Impact of demand on prices
Rising prices will benefit coal producers and help strengthen their cash flow and debt service capacity. However, long-term pressures from reduced import needs in China and India, as well as the energy transition, still exist. Regulatory uncertainties and rising cash costs for Indonesian producers offset some of the benefits of higher prices.
Production challenges in Indonesia
Higher prices in Indonesia may ease pressure on the government to implement deeper production cuts, but uncertainties in the allocation of production quotas for 2027 and domestic market requirements continue to limit operational visibility. Indonesia's export coal supply is likely to be unpredictable, despite the government's adjustment of the coal production target for 2026 from 600 million tons to a higher amount. This situation is exacerbated by severe drought caused by the El Niño phenomenon, which has limited transportation on the Barito River, leading to a 23.3% decrease in exports in August and an 18.1% decrease in September.
China's production recovery and its impact on the market
China's coal production is expected to gradually improve due to stricter safety inspections following the Shanxi mine accident in May. National raw coal production decreased by 10.1% in July and 7.7% in August. However, imports have partially compensated for domestic shortages, with increased transport from Mongolia due to weak supply from Indonesia.
China's demand, which accounts for more than one-third of Asia's thermal coal imports in 2025, will have limited support after domestic production normalizes. In the first eight months of 2026, thermal production has only increased by 0.9%, with decreases of 3.5% and 4.3% in July and August, respectively. However, thermal production is expected to remain stable or decline slightly in 2027.
Coal price outlook
Given the growth in electricity demand of 5 to 7 percent in Asia, along with reduced hydropower production and constraints on renewable energy transmission, coal demand in South and Southeast Asian markets will remain strong. India and Vietnam are the main drivers of this growth. Rising prices will benefit revenue, cash flow, and debt service capacity for producers, especially for low-cost producers with strong balance sheets. Prices are expected to remain strong in the coming months due to restocking in the winter season.
However, increased production in China may eventually lower prices, but the timing depends on foreign supply. Continued production constraints in Indonesia or logistical disruptions could keep the maritime market tight in the short term, while lower import needs from China and India, as well as the energy transition, weaken the export outlook in the long term.
