SINGAPORE, Feb 2 (Reuters) - Indonesia's coal mining association (ICMA) has objected to steep production cuts for 2026 proposed by the government, saying the move could trigger mass layoffs and harm the mining industry.

Most members of the association, which represents companies producing two-thirds of Indonesia's coal, received output quotas 40%-70% lower than 2025 levels, ICMA said in a January 31 letter to energy and mineral resources minister, Bahlil Lahadalia.

"We submit our objection and request for reconsideration of the 2026 coal production cuts," ICMA said in the letter seen by Reuters.

The proposed output cut is an attempt to shore up plunging thermal coal prices amid fears of oversupply by the world's largest exporter of the fossil fuel, revenues of which have been hit by falling demand in top importers, China and India.

With the production scale significantly reduced, companies face economic unfeasibility as fixed costs and obligations cannot be adequately covered, the ICMA said.

The energy ministry and its directorate general for coal did not immediately respond to requests for comment.

Shares of Indonesia's top coal miners by output plunged in 2025, underperforming broader market (.JKSE) growth of nearly 22%. Adaro fell 18% last year, while Golden Energy Mines (GEMS.JK) lost 24% and Bukit Asam fell 16%.

The cuts exceed the rate of decline anticipated after the government earlier indicated an annual output of 600 million metric tons, Citi analyst Ryan Davis said. Indonesia produced 790 million tons of coal in 2025, down 5.5% annually.

"The current adjustments are abrupt and highly uneven across producers, incrementally increasing execution risk," Davis said in a note on Monday.

The association said the impact would ripple beyond mining firms, affecting contractors, transport and shipping companies, and raise the risk of loan defaults in coal-producing regions.