Asian thermal coal prices will likely stay high for months due to Indonesian supply uncertainty and lower Chinese production. Demand from Japan and South Korea supports prices, benefiting miners in the short term, according to Fitch Ratings.

Asian thermal coal prices are likely to remain elevated over the next few months as uncertainty over Indonesian supplies and lower Chinese production constrain availability, while gas-to-coal switching in Japan and South Korea supports demand, according to a report by Fitch Ratings.

The rating agency said the tight supply outlook, along with winter restocking, would support prices in the near term, benefiting coal miners through stronger cash flows and improved debt-servicing capacity. However, it cautioned that these gains would not offset longer-term pressure from declining Chinese and Indian import demand and the shift toward cleaner energy sources.

Indonesian Supply Constraints

Indonesian coal exports have faced disruptions from uncertainty over mining quotas and logistical constraints. Severe drought linked to El Nino has restricted barging along the Barito River, contributing to a 23.3 per cent year-on-year decline in exports in August and an 18.1 per cent fall in September.

“Higher prices in Indonesia may ease pressure for the government to impose deeper production cuts, but uncertainty over production quota allocation for 2027, single-door export policy, domestic market obligation requirements, and broader mining regulation will continue to constrain operating visibility,” the report said.

Some Indonesian producers have declared force majeure on coal shipments because they could not secure mining quotas or faced logistical bottlenecks, Fitch said. Although the government eased its initial 2026 coal production target of 600 million tonnes, compared with an actual output of 790 million tonnes in 2025, uncertainty over 2027 quotas and export policies continues to affect operating visibility.

China's Production Declines

China's coal production has also been weak following tighter safety inspections after a mine accident in Shanxi in May. National raw-coal output declined 10.1 per cent year-on-year in July and 7.7 per cent in August, leaving production down 3.3 per cent in the first eight months of 2026. Fitch expects Chinese production to recover gradually, which could eventually ease prices. However, the timing will depend partly on whether Indonesian supply constraints and logistical disruptions persist.

Mixed Demand Trends

Demand trends remain mixed. Coal consumption in India and Southeast Asia continues to be supported by power demand growth of 5-7 per cent, weaker hydropower output, and constraints on adding renewable energy capacity. In contrast, China's thermal power generation rose just 0.9 per cent in the first eight months of 2026, as higher renewable and nuclear output reduced reliance on coal. Fitch expects Chinese thermal power generation to remain broadly flat or decline mildly in 2027 as new renewable capacity meets additional electricity demand.

Outlook for Miners

For miners, higher prices should support near-term earnings, particularly for low-cost producers with strong balance sheets. However, Fitch said rising regulatory uncertainty and costs in Indonesia remain important credit risks, while the longer-term shift away from thermal coal continues to weigh on the sector's export outlook. (ANI)

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