Indonesian coal miners on shaky ground as global demand falters, rules tighten

Business Times

24-06-2025

[JAKARTA] Indonesian coal miners are hurting from falling prices and softening demand from giant consumers India and China. This is even as a global supply glut and stricter regulations at home are further denting margins, adding salt to the wound.
Profits go south
The steep decline in coal prices has thrown a spanner in the works for Bukit Asam, a major state-owned mining company. Its first-quarter profit plunged 50 per cent year on year to 391.4 billion rupiah (S$30.7 million), highlighting the tough market headwinds that it is battling.
Similarly, listed coal producer Alamtri Resources Indonesia saw its profit shrink dramatically to 1.3 trillion rupiah, down nearly 80 per cent compared with the same period last year. China accounts for 30 per cent of each company's export market share.
Indonesia's total coal exports dropped sharply in the first four months of this year. Export value fell 19.7 per cent to US$8.2 billion, while export volume decreased 5.8 per cent to 122.8 million tonnes, compared to last year's figures.
Nafan Aji Gusta, market analyst at Mirae Asset Sekuritas, said medium to large-sized coal companies with strong cash reserves are better equipped to weather the current challenges. They have laid out short and medium-term strategies focused on cost efficiency, operational improvements, and long-term business sustainability.
'These measures aim to maintain performance and boost optimism among coal industry players, despite the sector still being overshadowed by the falling global coal prices and ongoing international geopolitical uncertainties,' he noted.
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Amid such a challenging environment, analysts expect the country's coal producers to look to other Asian markets to diversify beyond its traditional markets and capture growth in emerging demand centres.
'We continue to see an increase in supply of Indonesian coal to countries such as Vietnam, Bangladesh and the Philippines, with all three expected to see continued demand growth over the next two to three years,' Minh Hoang, an analyst at S&P Global Ratings told The Business Times.
With coal demand from China and India losing steam, analysts say Indonesia may need to fast-track its diversification strategy. Fitch Ratings' Asia-Pacific Corporates team even noted that 'some Indonesian coal companies are already branching out into gold or metallurgical coal to prepare for a lower-carbon future'.
Still, as the decarbonisation race gains momentum, Indonesian miners may find themselves on increasingly shaky ground, caught between rising regulatory pressures at home and shrinking markets abroad.
Shaky ground
Analysts say demand for thermal coal in China – Indonesia's largest export market – is likely to continue its downward trajectory in the medium to long term. The decline is being driven by the East Asian giant's accelerated shift towards cleaner energy sources, alongside broader macroeconomic headwinds that are weighing on industrial activity and energy consumption.
Annie Ao, analyst at S&P Global Ratings, noted that 'this year's weak coal demand is mainly due to the challenging macro conditions, with power-consumption growth slowing to 3.1 per cent in the first four months of 2025, from the 6 to 7 per cent seen in the past two years'.
China's coal imports from Indonesia took a nosedive, plunging 26 per cent year on year to 12.5 million tonnes as at May 2025, showed customs data.
The drop is part of a wider slowdown in the country's coal purchases, as overall demand cools. Imports from Russia also lost steam, slipping 9 per cent in May compared with the same period last year to 8.3 million tonnes.
Hoang from S&P said that while thermal coal prices have historically shown high volatility, the current oversupply in the market is likely to hit Indonesian miners hard. 'With the current market glut, we expect Indonesian miners to feel the impact, as China's emission controls and falling prices are likely to reduce demand for Indonesian coal, which is mostly of low-to-mid quality.'
In May, S&P Global Ratings took an axe to its thermal coal price forecasts, trimming them by 10 to 20 per cent amid waning global appetite.
Meanwhile benchmark Newcastle coal prices are expected to hover around US$105 per tonne through the rest of 2025, before easing to US$100 in 2026 and settling into a steady groove at US$90 from 2027 onwards.
Fitch Ratings echoed the concern, warning that export demand for Indonesian coal will continue to shrink, while domestic demand growth will not be sufficient to fill the gap.
'Margins for Indonesian miners will be squeezed this year, increasing pressure on their credit profiles,' said Fitch analysts, adding that miners may try to cut costs by adjusting their strip ratios or renegotiating contracts with mining service providers.
Stricter rules
Along with facing strong global headwinds in the coal market, Indonesian miners are also grappling with local hurdles as tightening domestic regulations add more pressure. While subdued prices challenge margins, new rules at home are making it even harder for miners to stay in the black.
In March, the Indonesian government introduced a regulation requiring coal exporters to use the official benchmark price, known as the Harga Batubara Acuan.
The move is aimed at strengthening state control over coal pricing and curbing reliance on independent pricing agencies, which had been quoting significantly lower rates than the government's reference.
Analysts warn that this measure could erode profit margins, as companies are now bound to follow government-set prices. Adding to the pressure, the government has also raised royalties for coal miners.
Crimping their flexibility further, exporters are now required to retain their foreign-exchange earnings in domestic banks for at least one year.