Asian thermal coal prices are set to remain elevated in the near term, constrained by Indonesian supply uncertainty and lower Chinese output, Fitch Ratings said in an October 19 report.

Demand from Japan and South Korea, where gas-to-coal switching driven by Middle East conflict remains firm, is further propping up regional prices, particularly for high-CV coal grades.

Supply: Indonesian uncertainty, China recovery

Production quota allocation for 2027, single-window export policy, domestic market obligation (DMO) requirements and broader mining regulations continue to limit operational visibility for Indonesia's coal industry, making export supply hard to predict. The government has relaxed its initial 600 million tonnes output target for 2026 (actual 2025 output was 790 million tonnes), but policy uncertainty persists.

Meanwhile, severe drought triggered by El Nino has restricted barge transport on Indonesia's Barito River, with some Indonesian producers declaring force majeure on coal supply due to unavailable mining quotas and logistics bottlenecks.

Kpler ship-tracking data showed Indonesia's seaborne coal exports fell 23% year on year in August 2026 and 18.1% in September. Rising regulatory uncertainty and higher cash costs for Indonesian miners have also partly offset gains from higher prices.

In China, stricter safety inspections following the May coal mine accident in Shanxi pushed national raw coal output down 10.1% year on year in July and 7.7% in August. The September decline narrowed to 6.8%, but cumulative output was still down 3.5%, with Shanxi's cumulative raw coal output falling 14.6%. Imports partly filled the domestic gap, with higher Mongolian coal shipments offsetting some of the reduction in Indonesian supply.

Fitch expects Chinese supply to recover as safety inspections gradually ease, but the timing depends on external supply conditions. If Indonesian production curbs or logistics disruptions persist, the seaborne market will remain tight in the near term.

Demand: firm Japan, S. Korea; strong SE Asia

Gas-to-coal switching demand in Japan and South Korea is expected to stay firm amid Middle East geopolitical conflict, pushing up regional prices, especially for premium high-CV coal. Australia's Newcastle 6,000 Kcal/kg NAR benchmark has risen nearly 30% from pre-conflict levels.

Demand in South and Southeast Asia also remains strong. The report cited expected power demand growth of 5-7%, weak hydropower output and transmission capacity constraints on new renewable capacity. India and Vietnam are the main growth drivers, with energy security considerations further reinforcing coal's role in regional power systems.

Chinese demand is weak, offering limited support. China accounted for more than one-third of Asia's seaborne thermal coal imports in 2025, but thermal power generation rose only 0.9% in the first eight months of 2026, falling 3.5% in July and 4.3% in August, mainly due to higher renewable and nuclear output.

Fitch expects China's thermal power generation to be broadly flat or slightly lower in 2027, as new renewable capacity meets incremental power demand, though weather conditions and curtailment remain uncertain. Weak steel and construction demand will also weigh on coal consumption, only partly offset by coal chemical growth. With gas-fired generation accounting for a small share of China's power mix, high gas prices have limited impact on Chinese coal demand.

Prices and industry impact

Fitch expects Asian thermal coal prices to stay firm in the coming months, supported by winter restocking. Although seasonal demand support appears weak so far, Chinese domestic coal prices have hit three-year highs in recent weeks.

Firm prices will support miners' near-term cash flow and debt servicing, with low-cost producers with strong balance sheets benefiting most. For Indonesian producers, however, rising regulatory risk has reduced operational visibility and become a credit consideration as important as commodity prices.

Higher prices may ease pressure on the Indonesian government to cut output, but cannot reverse the long-term pressure from declining import demand in China and India and the energy transition. In the long run, stronger prices are also unlikely to reverse producers' shift away from thermal coal dependence toward diversified businesses, with these companies likely to invest in other commodities to broaden cash flow sources.