If the government seeks to support prices, then cutting and enforcing industry output controls can work – particularly if lignite is targeted by this policy. Compared to imposition of price floors, production cuts are more effective, easier to apply, deliver fewer unintended outcomes (gluts). We see five policy risks: 1. China has a history of penalising sources that alter trade terms/conditions (Indonesia’s 2025 price floors; 2020-22 bans on imported Australian coal); 2. Indonesia may have difficulty securing coal supply for local coal-fired utilities (25% universal cut may see some miners failing to deliver on ‘domestic market obligations’ – which secures supply for local utilities); 3. A general 25% cut may prompt a short-term collapse in industry royalties and export tax revenues, before the policy objective of higher prices is achieved; 4. Another policy backflip will undermine the Ministry’s market credibility; 5. China secures long-term substitutes (boosts local coal supply + imports from Russia-Australia-Mongolia). n
would take our forecast global trade balance deep into deficit, driving up our short-term price outlook. salto ke belakang = ‘backflip’ An 11% cut to our thermal coal export forecast should make us big price bulls, yes? While we certainly do recognise new upside risk to all trade prices we’re also waiting for more evidence of policy ‘follow through’. Why? Because we’ve been here before, with Lahadalia’s policy roll-outs. In early 2025, he sought to influence export prices, by directing local traders to strictly adhere to government-set price floors (HBAs). By mid-2025, this government backflipped, by removing these floors – to offset the collapse in exports. Why? It turned out, China – biggest buyer of Indo-coals – responded to Lahadalia’s price floors with a hike to its domestic coal production rate. Price floor vs. Output cut Does Indonesia’s replacement of a price floor policy with a production cut policy deliver a different outcome? Absolutely, yes. We believe that the only effective way to lift prices – and tax returns – on Indonesia’s >500 mtpa coal industry is to control supply. For it is far easier to track and control activity at the mines, than to dictate prices in the market. Output controls also avoid supply chain gluts that emerge with price floors. In Indonesia’s case, output controls should target the lowest grades, particularly lignite. If lignite is cut, the prices and values of all superior products will lift. If he seeks to boost prices, then Lahadalia’s policy switch here should work. He just needs to stick to it. What’s going on in China? Of course, that fact that China can at least partly substitute 0.2 btpa of Indonesian imports with locally mined coal prompts at least two questions: 1. What exactly is China’s domestic coal production capability? 2. If it is large, then why import at all? China is by far the largest national producer and consumer of coal. For 2025, it mined 4.8 btpa of raw coal (+1.2%YoY), 56% of the global total. Of this total, 3.7 btpa (78% of total) was used for local power generation; 0.6 btpa (12%) for coke-steel production; the remaining 0.5 btpa (10%), in cement clinkering. Supplementing China’s local coal output in 2025 was 359 mt of thermal coal imports versus 2.4 mt thermal coal exports, for 357 mt net-imports. Of the imports, 190 mt was imported from Indonesia – 55% of China’s total thermal coal imports – its largest source. China’s other key import sources are Australia (66 mt, 2025), Russia (28 mt) and Mongolia (18 mt). Note, less than 1 mt was imported from South Africa. Why would China need to import coal, if it mines almost 5 btpa of its own supply? Two key reasons: 1. To boost the calorific value of China’s typically low-grade local coals, via blending with imports; 2. Because some coal-poor regions of China, particularly in the south, can access seaborne sources more cost-effectively than local ones. Useful conclusions Outwardly, of course the government of Indonesia’s plan to cut 2026’s national coal output to just 600 mt, 25% below 2025’s rate, is bullish for globally traded prices. For if we assume demand is unchanged and the cut is applied universally, resulting in a 25% cut to our forecast Indonesia exports of 493 mt too – the policy it removes 11% from our global supply forecast, massively lifting both the forecast deficit and the upside price risk.
March 2026 | www.modernminingmagazine.co.za MODERN MINING 11
Made with FlippingBook flipbook maker