Asian Coal Prices to Stay High as Indonesian Supply Shocks Hit Market
Fitch Ratings warns that Indonesian supply curbs and low Chinese production will keep Asian coal prices elevated in the coming months.
The market for thermal coal in Asia is bracing for a period of sustained high costs. According to a recent report by Fitch Ratings, Asian coal prices are expected to remain elevated over the next few months, driven by a volatile cocktail of supply disruptions from Indonesia, sluggish production in China, and a strategic shift in energy usage across East Asia.
The Indonesian Crisis: Drought and Regulation
Indonesia, a pivotal player in the global coal trade, is currently grappling with a series of setbacks that have severely tightened market availability. A primary culprit has been the severe drought linked to El Nino, which has crippled logistics. Specifically, barging along the Barito River has been restricted, leading to a dramatic slump in exports.
The numbers tell a stark story: exports plummeted by 23.3 per cent year-on-year in August and continued to fall by 18.1 per cent in September. Beyond the weather, regulatory instability is adding to the chaos. Fitch highlights several pain points:
- Uncertainty surrounding the allocation of production quotas for 2027.
- Complexity regarding the single-door export policy.
- Strict domestic market obligation requirements.
- General mining regulation ambiguities.
The situation has become so critical that some Indonesian producers have declared force majeure on their shipments, citing an inability to secure mining quotas or overcome logistical bottlenecks.
China's Production Slump
While Indonesia struggles with logistics, China is facing production hurdles. Following a mine accident in Shanxi in May, the Chinese government intensified safety inspections, which inadvertently throttled output. This led to a 10.1 per cent year-on-year decline in raw-coal output in July and a 7.7 per cent drop in August.
For the first eight months of 2026, overall production has dipped by 3.3 per cent. Although Fitch expects a gradual recovery in Chinese production—which could eventually cool down prices—the timeline remains uncertain and heavily dependent on whether Indonesian supplies stabilize.
Mixed Demand: The Tug-of-War
The demand side of the equation presents a contrasting picture across different regions:
Growth in India and Southeast Asia
In India and Southeast Asia, coal consumption remains robust. This is fueled by a 5-7 per cent growth in power demand, coupled with disappointing hydropower output and difficulties in expanding renewable energy capacity quickly enough to fill the gap.
The Shift in Japan and South Korea
Interestingly, Japan and South Korea are supporting coal demand through "gas-to-coal switching," opting for coal over more expensive gas alternatives.
China's Green Transition
Conversely, China's reliance on coal is waning. Thermal power generation grew by a mere 0.9 per cent in the first eight months of 2026, as the country aggressively integrates nuclear and renewable energy into its grid. Fitch predicts that Chinese thermal power generation will either remain flat or decline slightly in 2027.
Impact on Coal Miners
In the short term, the price surge is a windfall for coal miners. Stronger cash flows and an improved ability to service debt are expected, particularly for low-cost producers with healthy balance sheets. Winter restocking will further bolster these near-term gains.
However, the report serves as a warning that these temporary profits are a silver lining in a darkening sky. The long-term outlook remains pressured by the global transition toward cleaner energy and a projected decline in import demand from the two biggest consumers: China and India.
Rising regulatory uncertainty and costs in Indonesia remain important credit risks, while the longer-term shift away from thermal coal continues to weigh on the sector's export outlook.