iEnergy: Indonesian coal outlook shaped by policy risks and grade switching

By Dominikus

Indonesia’s coal industry is entering the third quarter of 2026 with a more complicated market equation: Asia still needs coal, but buyers are becoming more selective on quality, price, reliability and contract execution.

That was the key message reflected in a presentation by Vasudev Pamnani, Director of iEnergy Natural Resources Limited, during the ICM Conference organized by SMM in Jakarta last week.

The iEnergy outlook suggests that the global coal market may remain supported in 2026 by energy security concerns, tighter LNG availability and Middle East-related supply risks. However, the same outlook points to a more bearish seaborne trade environment from 2027 onward, as demand growth becomes more uneven and buyers continue shifting toward more competitive mid-CV and high-CV material.

For Indonesia, the issue is no longer just whether Asian demand remains strong. It does. The larger question is whether Indonesian coal can maintain its competitiveness in a market that increasingly rewards quality, certainty and execution.

2025 baseline: Indonesia exports weakened despite record global production

Global coal production reached a record 9.2 billion tonnes (BT) in 2025, up 4% year on year, according to iEnergy. Asia remained the clear center of global coal activity, led by China and India.

But global production growth did not translate into a stronger thermal coal trade. World thermal coal trade slipped from 1,024.5 million metric tonnes (MMT) in 2024 to 983.6 MMT in 2025, as major importing countries remained well stocked, spot buying softened and weak prices encouraged buyers to switch from lower-CV coal to mid-CV and high-CV alternatives.

Indonesia was directly exposed to this shift. The country’s thermal coal exports declined to 494.9 MMT in 2025 from 525.1 MMT in 2024. iEnergy attributed the weaker performance to policy uncertainty, tighter regulation of illegal mining, HBA-linked export duties, price volatility and reduced competitiveness of lower-CV Indonesian coal against higher-quality supply.

Indonesia’s thermal coal production also declined in 2025, with the outlook showing further pressure in the coming years. For producers, this means 2025 should be viewed as the start of a more disciplined market cycle, not simply a temporary soft patch.

Q1 and early-Q2 2026: Tight supply signals, uneven demand

The iEnergy document does not provide a separate Q1 production figure for Indonesia, but its early-2026 indicators show a market still under pressure.

Indonesia exported 152.6 MMT of thermal coal in Jan-Apr 2026, equal to around 31% of its 2025 full-year export volume. On a simple run-rate basis, exports would need a stronger Q2 and Q3 performance to avoid another year of contraction.

The early-year market was shaped by two opposing forces.

On the supply side, miners’ Work Plan and Budget (RKAB) approval delays created uncertainty around mining quotas and tightened coal availability in the seaborne market. This supported some market sentiment, particularly among buyers concerned about Indonesian cargo execution.

On the demand side, import appetite remained soft in key markets. China’s thermal coal imports fell to 371.0 MMT in 2025 from 421.4 MMT in 2024, with Jan-Apr 2026 imports at 106.8 MMT. iEnergy expects China’s imports to remain stable to slightly weaker, supported by resilient domestic production and higher renewable penetration.

India also remained a difficult market for Indonesian suppliers. Its thermal coal imports fell to 161.4 MMT in 2025, down by around 10 MMT, and reached 50.2 MMT in Jan-Apr 2026. iEnergy expects India’s 2026 thermal coal imports to decline by another 4-5 MMT, as domestic production stays strong and buyers continue adjusting procurement strategies.

Most importantly, lower coal prices encouraged Indian buyers to reduce Indonesian lower-CV coal purchases while increasing imports from South Africa, Russia and the US.

Q2 outlook: Policy uncertainty becomes Indonesia’s market discount

The Q2 outlook remains cautious. iEnergy noted that global thermal coal trade is still under pressure from weak demand, high inventories, grade switching and supplier policy uncertainty.

For Indonesia, policy risk has become a commercial issue. RKAB delays, HBA-linked duties, production controls and the proposal to centralize coal exports through a state-owned entity have raised concerns over export flows, pricing and contract execution.

This does not mean buyers will abandon Indonesian coal. It means buyers may demand a discount for uncertainty.

In a competitive market, even a low-cost supplier can lose ground if buyers are unsure about cargo availability, documentation, price formula, delivery timing or contract continuity. That is the central challenge for Indonesia in 2026.

South Africa, Russia and Australia are all positioned to benefit from this uncertainty. South African coal is gaining attention as a competitive mid-CV and high-CV alternative. Russian coal remains supported by price competitiveness and relatively high quality. Australian thermal coal may see short-term support from China, Japan and South Korea if LNG markets remain tight.

Q3 outlook: Tactical recovery, not a full bull cycle

Q3 2026 may bring a selective recovery in thermal coal demand. iEnergy expects coal trade to rise in 2026, supported by the Middle East crisis and LNG supply disruptions that could encourage fuel switching toward coal.

This may benefit Northeast Asian buyers such as Japan, South Korea and Taiwan, where coal imports have declined in recent years due to natural gas, nuclear and renewable energy penetration. iEnergy expects imports in these markets to improve slightly in 2026 due to tighter LNG supply, although the long-term outlook remains bearish.

Southeast Asia offers a more important opportunity for Indonesia.

Vietnam remains one of the strongest coal demand growth markets in East Asia. The country consumes around 95 MMT of coal annually, with nearly half of demand met through imports. Coal-fired power accounts for around 50% of Vietnam’s electricity generation mix, and both production and imports are expected to rise in the coming years.

Malaysia and the Philippines also remain key outlets for Indonesian coal. Both imported around 37-38 MMT of thermal coal in 2025, with coal still the largest source of power generation in both markets. Malaysia has around 12 GW of coal capacity under development, while the Philippines has around 2 GW.

Thailand may also support regional coal demand in 2026. Its annual coal consumption is around 30 MMT, and imports are expected to rise amid higher natural gas prices and tighter supply. With more than 55% of Thailand’s power generation dependent on gas, coal may regain short-term importance as a fuel security option.

Still, the Q3 recovery is unlikely to resemble the price shock cycle of 2022. This is a tactical recovery driven by fuel security, not a broad structural demand boom. Buyers will remain disciplined, and quality will matter.

2026 projection: Positive global tone, pressured Indonesia outlook

Globally, iEnergy expects the coal market to remain positive in 2026. Production is projected to increase as major producing countries focus on energy security and domestic fuel demand. Thermal coal trade is also expected to rise, helped by LNG supply disruption and geopolitical tension.

Indonesia’s position is more fragile.

The country faces three structural pressures. First, Asian buyers are shifting toward mid-CV and high-CV coal. Second, domestic policy uncertainty is affecting buyer confidence. Third, the largest demand centers are no longer delivering uniform growth.

China is stable to slightly weaker. India is bearish for thermal imports. Northeast Asia offers only temporary upside from LNG tightness. Southeast Asia remains supportive, but long-term upside is limited in some markets.

This means Indonesia may not fully benefit from a positive global coal market in 2026 unless it can restore buyer confidence, improve supply certainty and defend the competitiveness of its lower-CV coal.

2027 outlook: The tougher cycle begins

The most important strategic signal from iEnergy’s presentation is the shift expected from 2027 onward.

While 2026 still looks positive, iEnergy expects the global coal trade outlook to turn bearish from 2027, with demand and trade volumes likely to decline gradually over time.

For Indonesia, this implies a tougher export environment. Chinese import demand is expected to remain stable to slightly weaker. India’s domestic coal production is expected to remain resilient, supported by government initiatives and coal mine privatization. Northeast Asian demand is expected to decline over the long term as natural gas, nuclear and renewable energy increase their share.

Indonesia’s future export growth will therefore depend increasingly on Southeast Asia and selected emerging markets. But this demand will be more competitive, more price-sensitive and more quality-conscious.

The industry should prepare for a margin discipline cycle in 2027. Producers with high costs, weak logistics, inconsistent quality or exposure to lower-CV coal may face pressure. Producers with strong blending capability, reliable delivery, stable contracts and clear customer relationships should be better positioned.

Coking coal: More resilient than thermal coal

Coking coal presents a different market story.

Global coking coal trade declined slightly to 294.0 MMT in 2025 from 299.7 MMT in 2024, with Jan-Apr 2026 trade at 91.5 MMT. China’s steel slowdown weighed on demand, but India has emerged as the key growth engine for seaborne coking coal.

Global steel production fell 2% in 2025, while China’s output declined 4% due to weakness in the property sector. In contrast, India’s steel production rose 10%, supported by infrastructure and manufacturing expansion.

For coal market participants, this is important. Thermal coal demand is increasingly tied to power market flexibility and energy security. Coking coal remains tied to blast furnace steelmaking, steel mill profitability and industrial growth.

Despite investment in green steel, EAF technology and decarbonization, iEnergy said coking coal remains indispensable for blast furnace steelmaking. Demand is expected to stay resilient beyond 2030, while constrained supply growth could keep the market structurally tight.

Indonesia is not the dominant player in global coking coal trade, but the trend matters because it reinforces the growing premium for higher-quality coal and steel-linked demand across Asia.

Renewable energy: Fast growth, slower generation impact

Renewable energy continues to expand rapidly, but coal remains difficult to displace in power generation.

In 2025, renewables accounted for 34% of global installed capacity but only 20% of power generation. Coal accounted for 23% of installed capacity but generated 33% of global electricity, making it the largest source of global power generation.

This explains why coal remains relevant. Renewable capacity is growing, but generation growth has lagged additions. Coal continues to provide dispatchable power, particularly in Asia, where electricity demand, industrial growth and energy security remain central priorities.

China and India accounted for nearly 90% of global coal power additions in 2025. At the same time, higher renewable penetration has already started to reduce some coal-fired generation in China. Northeast Asia is also reducing coal imports over the long term as gas, nuclear and renewables expand.

For Indonesia’s coal industry, renewables do not signal immediate displacement. They signal a more selective future. Coal will remain essential where it provides affordability, reliability and energy security, but its market position will increasingly depend on cost, emissions, quality and policy certainty.

Indonesia’s future: From volume exporter to reliability supplier

Indonesia’s coal industry still has a future, but the business model is changing.

For years, Indonesia’s advantage was scale, low mining cost and proximity to Asian buyers. Those strengths remain important. But the next phase of competition will be driven by reliability.

Buyers want certainty on cargo availability, quality, delivery schedule, contract execution and pricing transparency. If Indonesian suppliers cannot provide that certainty, buyers will diversify, even if Indonesian coal remains price-competitive on a USD FOB basis.

The strategic priority for Indonesian coal companies in Q3 2026 is therefore clear: protect core customers, improve blending flexibility, manage cash costs, strengthen logistics and reduce execution risk. The policy environment also matters. Clearer RKAB approvals, predictable export rules and stronger confidence in contract continuity would help Indonesia defend market share.

The conclusion from iEnergy’s outlook is straightforward. 2026 still offers room for tactical support, especially if LNG markets remain tight. But 2027 looks more challenging.

Indonesia’s coal industry should not treat the current market as a return to easy volume growth. It should treat it as a transition into a more disciplined, more selective and more competitive Asian coal market.

Editing by Reiner Simanjuntak