Indian Ocean Coal Trade Flows

Ever since the US and Israel started their bombing campaign against Iran on the 28th February the energy complex has been in turmoil. Coal hasn’t avoided the volatility, with the benchmark API2 climbing from around $106/t on 27th February to a peak of over $134/t on 9th March before dropping back to $128/t on the 10th.

In addition to higher seaborne coal prices, there are two further developments with the potential to affect flows:

• An increase in bunkers prices has pushed up voyage freight rates, further reducing the competitiveness of imports;
• An increase in gas prices has shifted the balance in favour of coal fired power in regions that currently burn gas but have the capacity to shift to coal;

In the September 2025 issue we highlighted that, following the scrapping of benchmark pricing rules in Indonesia and coal mine closures in China, Indonesian coal had become cheaper than domestic coal on a landed basis. Following the opening of this arbitrage window, imports from Indonesia rapidly ramped up. For the last four months of the year customs data show that Chinese imports of Indonesian coal averaged 22.4 Mt, up 47% from the average for the year up until that point.

The events of the last week have pushed up bunker prices and consequently voyage rates. A Panamax coal voyage from Newcastle to Rizhao is up from $14.60/t on the 6th February to $22.30/t on the 6th March. Panamax rates from Indonesia to Rizhao increased from $6.55/t to $10.10/t over the same time period. According to our estimates, Australian coal to north China has become more expensive than domestic coal and market reports suggest that even Indonesian coal is now being priced out of the Chinese market.

At the same time, Indonesia is said to be finalising production quotas for 2026. The government announced back in January that they intended to cut production quotas from 917 Mt in 2025 to just 600 Mt this year (compared to 790 Mt of actual production in 2025 and exports of around 520 Mt). There were reports last week that the Indonesian government had revised their total quota to 733 Mt, though this remains unconfirmed.

Now that there is pressure on Indonesian coal demand from their largest buyer the government may be increasingly concerned about market share. However, prospects of high and increasing energy costs for net energy importers such as Indonesia, along with concerns around energy sourcing and energy security due to the MEG war might support a more protectionist path in which coal exports are restricted. Whatever Indonesia decides to do is key to the Pacific coal and freight market and should be watched closely.

With 20% of global LNG exports originating from within the MEG and effectively shut in, gas prices have climbed the most since 28th February. The most interesting importing countries for the seaborne coal market are those that import a lot of gas, yet still have coal fired power, and in particular have spare coal fired power capacity. Japan and South Korea are the main candidates here, with coal and gas producing around 30% each of the total electricity generated in each country. The Institute for Energy Economics and Financial Analysis calculated that coal fired power was working at 67% capacity in Japan and 58% in South Korea in 2024.

However, Chinese coal import demand (400Mt in 2025) outweighs the potential for substitution: Japan imported around 160 Mt of coal in 2025 mainly from Australia (64%) and Indonesia (18%), South Korea imported 112 Mt, 31% from Australia, 26% from Indonesia and 19% from Russia. Hence, the current situation should be seen as a potential negative for Pacific coal demand.

 

by William Tooth,  Head of Futures Research, Research, SSY.