Coal's complex export dynamics: Indonesia, China and emissions concerns

Indonesia is the world's largest coal exporter, and its production hit a new high last year; China is its top market for the mineral (and the world's No. 1 coal importer more broadly).

However, as China and India are both producing more coal at home, Indonesia's exports are dropping. As our first chart shows, the world's two most populous countries are most responsible for the recent year-on-year declines. (South Korea and Vietnam remain growing export markets for Indonesian coal.)

And as our second chart shows, Chinese coal imports overall have started declining (measured on a year-on-year basis) for the first time since the post-pandemic aftershocks of 2022.

Historically, China had imported lower-calorie (and more heavily polluting) lignite coal from Indonesia and blended it with higher grades for use in power stations. But Chinese utilities have been able to source better-quality coal more cheaply of late. (Slowing demand for electricity has probably helped drive this trend, as our third chart shows.)

A breakdown of China's global imports by coal type, however, reveals that lignite imports have merely flatlined; imports of higher-quality bituminous coal (which includes the coking coal used in steelmaking) have been shrinking year-on-year, as our fourth chart shows.

Another headwind for Indonesia's thermal coal producers could be tighter emissions standards in China. And on the geopolitical front, US tariffs could result in lower coal demand from manufacturing-driven Asian economies.

Indonesia has also brought in a controversial new policy requiring exporters to use a state-set price (known as Harga Batubara Acuan, or HBA). Traders warn the benchmark is out of step with falling global prices, making Indonesian coal less competitive; as our final chart shows, Indonesian prices have been above their South African and Australian counterparts for several months.

Nonetheless, China will remain a significant customer of (and investor in) Indonesian mining - particularly in the nickel sector, as we wrote about earlier this year.