Top thermal coal importers China and India are slashing Indonesian shipments of the power generating fuel in favour of energy-dense grades from elsewhere as a global fall in prices has made higher-quality coal more competitive.
Coal purchases by China and India from Indonesia, the world's biggest exporter, are dropping faster than their overall thermal coal imports, as both nations shift toward higher-calorific value (CV) coal that yields more energy per ton, industry officials say.
"Higher CV coal is more expensive, but produces more energy for every dollar spent at current prices. One million tons of higher CV coal can replace 1.2-1.3 million tons or even 1.5 million tons from Indonesia," said Vasudev Pamnani, director at India-based coal trader I-Energy Natural Resources.
In China, Indonesian medium- and low-calorific thermal coal has been struggling to compete with discounted Russian supplies of similar grades, said Kpler analyst Zhiyuan Li.
Ramli Ahmad, the president director of Indonesian miner Ombilin Energi, said Indonesian coal could make a comeback if prices of higher grades rise due to the Middle East conflict, but lower-CV coal will suffer as long as more energy-dense grades are competitive.
Mongolian coal in China and South African coal in India have been the biggest gainers at Indonesia's expense, with their shares touching record highs in these markets in the first five months of 2025, Chinese customs and Indian trade data showed.
Higher production and improved efficiency will continue to boost Mongolian coal exports despite falling thermal coal prices in China as Mongolian coal has remained price-competitive, said Xue Dingcui, analyst at Mysteel.
China and India have also stepped up purchases from Tanzania, which was largely been absent from the global seaborne coal trade map until Russia's war on Ukraine in 2022.
Indian traders have also increased higher-grade coal purchases from Kazhakhstan, Colombia and Mozambique this year, while Australian supplies have gained share in China.
Indonesian and Australian coal indexes, reflecting grades preferred by Chinese buyers, have been trending lower since October 2023, with the Australian benchmark declining faster than the Indonesian one.
Looking within
Overall, Chinese coal imports fell nearly 10 per cent to 137.4 million tons in the first five months of the year, while shipments to India dropped more than 5 per cent to 74 million tons.
Indonesian exports have been the worst hit, with supplies to China and India sliding 12.3 per cent and 14.3 per cent, respectively. The southeast Asian nation's total coal exports dropped 12 per cent to 187 million tons in the January-May period, data from analytics firm Kpler showed.
To counter export declines, Indonesian miners are pivoting to domestic demand, with local deliveries poised to rise 3 per cent this year and exports set to decline about 10 per cent, according to the Indonesian Mining Services Association.
Domestic demand, driven by demand from nickel smelters, is on track to account for the highest share of Indonesian coal output in at least a decade and stands at 48.6 per cent currently, according to government data reviewed by Reuters.
Indonesia caps the price of coal sold to power utilities, making smelters a more attractive alternative to exports.
"The smelter industry is the brightest spot for now, we get better prices than we get from the power industry or sales to China," Ombilin's Ahmad said.