Indonesia's coal sector in 2025 stands at a crossroads. While the country remains a global leader in thermal coal production, the sector faces a perfect storm of oversupply, declining export revenues, and shifting global demand. For investors, the challenge lies in assessing how coal miners are adapting to these pressures through diversification and high-calorie specialization, while navigating policy uncertainty and climate commitments.

Market Dynamics: Oversupply and Declining Exports

Indonesia's coal production is on track to exceed 700 million tons in 2025, driven by robust domestic output. However, export volumes have dropped 6.33% year-on-year to 184.19 million tons in the first half of 2025, with revenues falling 21.09% to $11.97 billion. The average export price has plummeted to $64.99 per ton, reflecting global oversupply and weak demand. China and India, once key importers, are now producing record levels of coal domestically, reducing their reliance on Indonesian exports. Meanwhile, India's power plant coal inventories have surged to 60 million metric tons, sufficient for 20 days of operation, further suppressing prices.

Strategic Diversification: Aluminum, Renewables, and Nickel

To mitigate exposure to volatile coal markets, major Indonesian miners are diversifying into non-coal sectors. Adaro Energy, the country's largest coal producer, has invested in aluminum production and renewable energy projects, signaling a shift toward long-term stability. Similarly, Harum Energy is pivoting to nickel smelting, capitalizing on the global battery boom. These moves align with the energy transition, as nickel is critical for electric vehicle (EV) batteries.

However, not all miners are embracing diversification. Bayan Resources and Geo Energy Resources are doubling down on coal, expanding capacity by 58 million tons combined. Bayan secured $400 million in loans to boost output to 80 million tons, while Geo Energy acquired 25 million tons of capacity for $200 million. These expansions, however, risk locking in carbon-intensive infrastructure that could clash with Indonesia's climate goals.

High-Calorie Specialization: A Double-Edged Sword

The global shift toward higher-calorie coal has created a niche for Indonesian miners. Chinese importers, for instance, now favor higher-energy-content coal, leaving Indonesia's low-calorie exports less competitive. In response, some miners are upgrading their operations to produce higher-quality coal. Yet, this strategy is not without risks. The expansion of captive coal plants—power plants owned by miners to burn their own coal—could add 53 million tons of CO2 emissions annually, undermining Indonesia's 32% emissions reduction pledge under the Paris Agreement.

Policy Uncertainty: Regulation 10/2025 and the Just Transition

In April 2025, the Indonesian government introduced Regulation 10/2025, aiming to reduce coal dependence and achieve net-zero emissions by 2060. A key move was the early retirement of the 660-MW Cirebon-1 coal plant, supported by the Asian Development Bank. However, the policy has drawn criticism for excluding civil society and labor groups from decision-making, raising concerns about a just transition. Over 267,000 workers are employed in the coal sector, and without retraining programs or social safety nets, the transition could exacerbate inequality.

The regulation also promotes contentious technologies like biomass co-firing and carbon capture and storage (CCS), which critics argue prolong coal dependency. For investors, the policy's ambiguity—particularly its reliance on unproven technologies—introduces regulatory risk.

Investment Implications: Balancing Risks and Opportunities

For investors, the Indonesian coal sector presents a complex landscape. Adaro Energy and Harum Energy offer exposure to diversification and energy transition themes, but their coal-centric peers like Bayan Resources and Geo Energy Resources carry higher environmental and regulatory risks.

A strategic approach would involve hedging against policy shifts by investing in miners with diversified portfolios while avoiding those heavily reliant on high-calorie coal expansion. Additionally, investors should monitor the implementation of Regulation 10/2025 and its impact on coal plant closures.

Conclusion

Indonesia's coal sector is at a pivotal moment. While diversification and high-calorie specialization offer short-term resilience, the long-term viability of the industry hinges on aligning with global climate goals. For investors, the key is to balance exposure to growth opportunities with the risks of policy uncertainty and environmental backlash. As the energy transition accelerates, Indonesia's miners must navigate a narrow path between profitability and sustainability—a challenge that will define the sector's future.