Indonesia's potential increase in coal production quotas, known as the work plan and budget (RKAB), has raised concerns among Chinese buyers over a possible surge in supply during the rest of the year. However, some participants said the actual impact on seaborne availability is likely to be limited, as higher output targets face production constraints, stronger domestic market obligations (DMO), weak import demand, and limited price competitiveness in China.

While the final increase in RKAB quotas has yet to be approved, several Chinese market sources expect Indonesia's 2026 production allocation to be raised to around 700-750 million tonnes, compared with the current target of approximately 600 million tonnes.

The potential revision marks a reversal from Indonesia's earlier supply-control approach. At the start of the year, the government announced plans to slash coal output by over 24% from last year's level and raise the domestic market obligation (DMO) ratio for some major miners, aiming to curb oversupply and support prices.

However, stronger international coal prices in the first half of the year, partly driven by geopolitical tensions in the Middle East, changed the government's calculations. Higher export revenue potential, combined with pressure from domestic mining companies facing reduced output, prompted Jakarta to reconsider production controls.

Indonesia's Ministry of Energy and Mineral Resources (ESDM) announced on June 17 that it would begin revising coal production plans, allowing miners to submit applications for additional quotas from July. The application period is expected to close on July 31, with approvals to be granted gradually and subject to government control.

Higher quotas do not guarantee export growth

Indonesia produced about 229 million tonnes of coal in the first four months of 2026, according to data from the Energy and Mineral Resources Ministry (ESDM). Based on historical seasonal patterns, when production typically improves after the rainy season, January-June output could reach 340-350 million tonnes, and potentially slightly higher if mining activity accelerates during May and June.

That means the first-half output is likely to be about 13-17% above half of the original 2026 target of roughly 600 million tonnes. Even under a scenario where the total RKAB is raised by 150 million tonnes to 750 million tonnes, the implied additional quota for the second half would be around 100-110 million tonnes compared with the original annual target.

However, not all of this incremental volume would become available for export.

A key factor is Indonesia's DMO. The government has set a 2026 DMO target of around 247.9 million tonnes, Siti Sumilah Rita Susilawati, the secretary to the Director General of Minerals and Coal of the ESDM, said earlier in March this year. This means that even under a 750 million tonne production scenario, exportable supply would theoretically be capped at around 500 million tonnes before accounting for other domestic uses, stock changes and operational losses.

According to Kpler vessel-tracking data, Indonesia's coal exports in the first half were only slightly below the same period last year, following May-June increases. With the full-year RKAB output cuts and stricter domestic supply priority, the quota available for exports in the second half is unlikely to increase significantly.

In other words, part of the increase would likely be used to provide greater flexibility for meeting domestic supply commitments, especially as the country has been experiencing frequent rolling blackouts, rather than immediately translating into a surge of exportable coal.

One thing to note is that actual production may be below the theoretical level. The earlier production cuts have already affected mining operations. Some producers reduced equipment utilization, delayed mine development plans, and adjusted workforce levels after the government imposed tighter output controls.

Reactivating idle capacity is unlikely to happen immediately. Mining companies will need time to mobilize equipment, secure contractors, rebuild inventories, and normalize logistics chains.

As a result, some industry participants expect the realistic level to be closer to 730 million tonnes, rather than the upper-end scenario of 750 million tonnes.

At that level, the incremental supply available compared with the original 600 million tonne target would be smaller, and the actual increase in export availability would be further reduced after accounting for DMO requirements.

Beyond supply-side constraints, the export market itself may struggle to absorb additional Indonesian coal. Although China remains Indonesia's largest seaborne thermal coal buyer, import demand has weakened in 2026 as domestic coal supply remains sufficient and renewable power generation continues to expand.

Chinese utilities and traders have also become increasingly price-sensitive. Indonesian coal has frequently lost its traditional cost advantage against Chinese domestic supply and other overseas origins, limiting buyers' willingness to build inventories even if more Indonesian cargoes become available.

Sxcoal's estimate showed that Indonesian 3,800 Kcal/kg NAR coal was priced above China's domestic equivalent on a CV-converted and delivered to South China basis for about 72% of days so far this year, with both the Middle East conflicts and RKAB cuts contributing.

The geopolitical conflicts' impact on the seaborne thermal coal prices would continue in the near term. The US military has launched a new wave of attacks against Iran since July 12 amid the escalating standoff over the Strait of Hormuz, with Tehran saying the latest strikes had "rendered futile" all the diplomatic efforts of the past few months.

As a result, higher Indonesian production does not necessarily mean stronger exports to China. Without a significant improvement in import economics, additional Indonesian coal may face difficulty finding buyers in China.

Overall, the potential increase in Indonesia's coal production quota appears more significant on paper than in actual market terms. While the policy shift signals a move away from strict supply cuts, production constraints, higher domestic obligations and weak competitiveness in Chinese market are expected to limit the actual impact on seaborne coal availability.