Indonesia’s coal kaleidoscope: A year of adjustment, a test for 2026

By Cepi Setiadi

Global demand for thermal coal weakened at the start of 2025, led by major buyers such as China and India, driven by a combination of renewable energy deployment and a shift towards higher-quality coal. On a full-year basis, global coal demand in 2025 was broadly flat compared with 2024, with a mild contraction in the first half offset later by domestic demand in several producer countries. For Indonesia, the shift proved challenging, particularly for medium- and low-CV coal, even as the sector continued to play a critical role in exports and domestic energy security.

In response to weakening market conditions, the Indonesian government adjusted its coal pricing framework through the benchmark coal price (HBA), while industry players began reassessing market strategies. Discussions around diversification—both geographically and toward domestic industrial users—intensified, reflecting rising uncertainty in export markets.

Export performance deteriorated markedly in early 2025. Between January and April, Indonesia’s thermal coal exports fell by around 12% year-on-year, or roughly 20 million tonnes, to about 150 million tonnes—the lowest level for the period in three years. This decline contributed to an estimated 7% contraction in global seaborne coal trade and weighed heavily on prices. By May, global thermal coal benchmarks had fallen to their lowest levels in nearly four years, driven by oversupply, particularly from China’s domestic production.

Weakness persisted through mid-2025. China and India further reduced imports of Indonesian coal during June and July, increasingly sourcing higher-quality coal from Russia, Mongolia, and Africa. As a result, both export volumes and values declined in the first half of the year. Official data show that January–June 2025 coal export values fell by about 21.1% year-on-year, while volumes declined 6.3%. Average prices slipped to around US$64.99 per tonne, down nearly 16% from a year earlier.

Domestic demand, however, provided a partial buffer. National coal production reached about 584 million tonnes by September—well below the 2025 target of around 740 million tonnes—yet the share allocated to the Domestic Market Obligation (DMO) increased. This shift reflected a strategic pivot toward domestic supply security, particularly for power generation and energy-intensive industries such as nickel smelting. Coal consumption in Indonesia is estimated to have risen by around 7% in 2025, underscoring the growing role of the domestic market amid export headwinds.

The broader picture suggests that global coal expansion is approaching its peak, with demand growth constrained by the acceleration of renewable energy and gas adoption. While coal remains economically significant for Indonesia, global energy transition dynamics reinforce the need for diversification and more cautious production planning to mitigate market volatility.

By the third quarter of 2025, DMO realisation accounted for a substantial share of national output, highlighting the government’s priority on domestic supply despite falling exports. At the same time, producers faced mounting pressure from low global prices and regulatory uncertainty, including discussions around export levies. In November 2025, Australian benchmark coal prices—often used as an international reference—fell to their lowest level in nearly five years. These conditions reinforced calls for downstream development and value-added coal utilisation, even as the sector entered a clear phase of adjustment following the production peak seen in 2024.

Outlook 2026: Regulation tightens, stronger domestic support

Indonesia’s coal industry enters 2026 facing a more complex landscape. Domestic demand is expected to remain the sector’s primary anchor, while exports are unlikely to regain their previous role as a growth engine. The government projects domestic coal consumption could exceed 300 million tonnes annually within five years, driven by power generation and industrial growth. Coal is expected to continue contributing more than 40% of Indonesia’s primary energy mix, reflecting the relatively young fleet of coal-fired power plants.

Speaking at Coaltrans Asia 2025 in Bali, Director General of Mineral and Coal at the Ministry of Energy and Mineral Resources (ESDM) Tri Winarno said demand from smelters—particularly nickel—has surged sharply, with consumption projected to rise from around 5 million tonnes annually to more than 60 million tonnes in the coming years. While coal remains central to energy security, the government continues to promote cleaner and more efficient use in line with its net-zero emissions target for 2060.

Regulatory pressure is set to intensify in 2026. Authorities have signalled the possibility of raising the DMO quota above 25% through revisions to mining companies’ work plans and budgets (RKAB), in line with the Mining Law and Government Regulation No. 39/2025. The government is also preparing derivative regulations to strengthen DMO implementation and tighten oversight, including tax compliance and reclamation obligations.

As of October 2025, national coal production had reached 661 million tonnes, or about 89% of the annual target, while DMO realisation stood at roughly 181 million tonnes, or 75.5% of its target. With more than 100 new smelters under development—many requiring coal, including coking coal—DMO requirements could rise by an additional 2–3% in 2026.

Export prospects, meanwhile, remain uncertain. Demand from China and India is expected to persist but with greater price sensitivity and shorter-term contracting, while Japan and South Korea continue reducing coal reliance. Adding to the challenge, the government plans to introduce an export tax of 1–5% on coal starting in 2026, a move aimed at boosting state revenues but one that could further pressure producer margins.

Industry groups have urged the government to apply price thresholds to mitigate the impact during low-price cycles.  “With this approach, we believe the government’s objective of increasing state revenue can be achieved without placing an excessive burden on the industry, thereby ensuring the continued sustainability of operations,” said Indonesian Coal Mining Association (APBI) Executive Director Gita Mahyarani

On the supply side, the government is considering lowering the national production target for 2026 to below 700 million tonnes, potentially in the 600–700 million tonne range. This marks a policy shift following record output of 836 million tonnes in 2024. “Adjustments are currently being made and the evaluation process is still ongoing,” Tri Winarno said on November 11. “The target will likely be set below 700 million tonnes, in the range of 600 to 700 million tonnes,” he added.

Officials argue that tighter production discipline is needed to prevent oversupply and stabilise prices, though industry stakeholders warn of risks including idle capacity, weaker regional revenues, and financial stress for newer miners that entered the market during the 2022–2023 price boom.  “They will face serious challenges unless they have secured captive markets for the next several years,” said Ardhi Ishak, Head of the Industrial Relations Division at the Indonesian Mining Professionals Association (PERHAPI).

Despite these pressures, authorities maintain that Indonesia’s role in the global coal market remains supplementary rather than dominant, particularly compared with the vast domestic production capacities of China and India. The policy focus, therefore, is shifting toward balancing production with demand and maximising economic value rather than pursuing volume growth.  “The main objective of this policy is to optimise the economic value of coal, rather than merely pursuing export volumes. With this approach, the government hopes Indonesia’s coal prices will remain competitive, markets will be preserved, and the sustainability of national resources can be maintained over the long term,” said Surya Herjuna, Director of Coal Business Development at ESDM.

Conclusion

Coal remains a cornerstone of Indonesia’s economy, contributing around 70% of non-tax state revenue in the energy and mineral sector and potentially more than Rp250 trillion annually to the state budget. Yet the industry is clearly transitioning. Entering 2026, Indonesia’s coal sector is moving into a more regulated, domestically anchored, and disciplined phase. Production restraint, regulatory certainty, and closer coordination between government and industry will be critical. Coal remains relevant—but no longer expandable under the old growth-driven model. The coming year will mark a period of consolidation toward a more orderly, efficient, and sustainable coal industry.

Editing by Reiner Simanjuntak