Global thermal coal market is set for a recovery in the second half of 2025 (H2 2025) before weakening again as slowing economic activity and clean energy expansion weigh on demand, according to the latest Resources and Energy Quarterly released on October 7 by Australia's Department of Industry, Science and Resources.

The report noted that following a sluggish start to the year, global seaborne thermal coal trade is projected to pick up in H2. However, as demand is expected to weaken again thereafter, exports are expected to gradually decline over the next two years.

Demand

Among major importers, China's demand for seaborne thermal coal contracted sharply this year, with import volumes already trailing those of 2023 and 2024. While the report did not specify how domestic supply-demand dynamics or import levels will evolve, it expects China's thermal coal imports to remain subdued through H2.

The weakness stemmed largely from robust domestic coal production, even oversupply, which drove inventories higher and kept domestic prices under pressure.

The recovery in hydropower generation and lingering economic uncertainties are further curbing thermal coal consumption, it said.

Although extreme summer heat temporarily lifted coal demand, China continues to prioritize energy security by maintaining strong domestic supply alongside rapidly expanding renewable capacity.

Through flexibility upgrades, coal-fired plants are increasingly serving as a stabilizing force to balance intermittent renewables.

In India, coal demand continued to climb on the back of population growth and solid economic expansion. Domestic production rose by nearly 80% over the past decade, covering most of the incremental demand and keeping imports relatively stable. In H1, heavier-than-usual precipitations limited electricity demand and boosted hydropower generation, further suppressing imports.

India's government remained focused on achieving energy self-sufficiency while rapidly expanding renewable capacity, the report noted. Although coal still accounts for around 70% of the country's power generation, imported coal is expected to face increasing pressure from rising domestic supply and policy priorities favoring local production.

In Japan and South Korea, record-breaking heat this summer temporarily lifted coal imports to meet higher cooling demand, but this was short-term. Both countries' coal imports in H1 fell sharply from 2023 and 2024 levels as renewable and nuclear generation continued to expand.

Meanwhile, Taiwan is pressing ahead with its "coal-to-gas" transition program, gradually reducing its reliance on coal. One major project has already converted a 500-MW coal-fired unit to natural gas generation.

Overall, across these northeastern Asian economies, coal remained an important part of the power mix in the short term due to its reliability. However, its longer-term share in the energy structure is set to decline steadily as cleaner alternatives continue to expand.

Supply Side

Major exporting nations are facing the dual challenge of weakening demand and growing policy uncertainty. Indonesia, the world's largest thermal coal exporter, saw its shipments to China drop sharply year on year in H1.

Earlier this year, Indonesia introduced a coal benchmark pricing policy for exports, which proved unfavorable to both buyers and sellers amid an oversupplied market, further dampening trade.

Although the policy was lifted in August, its negative impact had already materialized. The report expected Indonesia's exports to recover somewhat in H2 as seasonal demand improves, but over the longer term, volumes are projected to decline in line with the structural shift in energy mixes across major importing countries.

In Russia, sanctions continued to restrict exports, forcing miners to sell at steep discounts to international benchmarks. This led to widespread financial losses and mounting debt among miners, prompting the government to extend subsidies, tax breaks, and other support measures to keep the sector afloat.

Despite these headwinds, Russian thermal coal retained some competitiveness on price, finding buyers in China, India, Turkey, South Korea, and Taiwan, though overall exports fell significantly.

In Australia, exports fell to a low of 46 million tonnes in the first quarter of 2025 before recovering slightly to 48 million tonnes in the second quarter. Flooding at Newcastle Port and subsequent delays in shiploader replacement caused prolonged vessel queues, temporarily limiting supply and lending support to prices.

The report forecast Australia's thermal coal exports to decline to 203 million tonnes in FY2025-26, and 201 million tonnes in FY2026-27. Export earnings are expected to fall from nearly $32 billion in FY2024–25 to $28 billion in FY2025-26, and further to $26 billion in FY2026-27. As global demand eases, Australian exports are projected to continue trending downward, with domestic policy uncertainty adding further risk to the outlook.

Overall, the global thermal coal market is undergoing a fundamental shift as supply and demand realign and prices search for a new equilibrium. In the near term, prices may fluctuate within a broad range, supported by seasonal or logistical factors.

However, the combined forces of energy transition and growing self-sufficiency among major importers are expected to drive a gradual, structural decline in global coal trade volumes.