Guosheng: Indonesian coal supply action reaffirms global coal price upside opportunities.

Guosheng released a research report stating that the Indonesian government plans to actively regulate supply to support coal prices during the downturn in the coal price cycle through a set of "combined policy" measures by 2026. Indonesia, as the world's largest coal exporter, its active substantial reduction in production will become a key force in reversing market balance. This move will directly reduce international market supply, help digest global high inventories, and may catalyze a rapid rebound in coal prices. In addition, with expectations of tightening supply in major producing countries, market confidence is expected to be boosted, providing strong support for international coal prices and significantly improving the profitability of major coal companies. Guosheng's main points are as follows: Indonesia: A 25% decline in production, with Sumatra accounting for 15.3%. The Indonesian coal production for 2025 is estimated to be 790 million tons, lower than 836 million tons in 2024, a decrease of about 5.5%. In 2025, the coal production in South Sumatra is estimated at 120.74 million tons, accounting for about 15.3%. The coal production areas in Sumatra are disadvantaged in terms of production contribution, production conditions, and cost control. Actively guiding the orderly optimization of its high-cost, low-efficiency capacity is a rational choice to promote the high-quality development of the Indonesian coal industry. Indonesia: The world's largest coal exporter, with a 25% decrease in exports, Sumatra's port shipments account for 15%. From January to December 2025, Indonesia's coal exports totaled 505 million tons, a 5% decrease from the same period in 2024. In terms of export structure, Indonesia's main export destinations in 2024 include China (34.9%), India (23.1%), South Korea (6.8%), and Japan (6.7%). In terms of export share by production area, Sumatra Island accounted for only 14.8% of exports in 2025, with high costs and thin profits. Optimizing its capacity will help improve the industry's concentration and high-quality development. Indonesia: A significant decline in coal export value and tax revenue, leading to a sudden increase in fiscal pressure From January to November 2025, Indonesia's coal export value (excluding brown coal) was $22.17 billion, a 20.27% decrease year-on-year. During the same period, coal exports (excluding brown coal) were 350 million tons, a 3.9% decrease, showing that the decline in export value exceeded the export volume, with the price dragging on more obvious. According to Indonesia's non-tax state revenue (PNBP) data in the energy and mining industry in 2021, mining and coal account for more than 50%, meaning that a decline in coal prices would severely affect Indonesia's national tax revenue and economy. Faced with income pressure, the Indonesian government needs to take action and plan more fundamental structural reforms in the coal industry. Indonesia: Strong growth in coal domestic consumption The IEA predicts that Indonesia's coal consumption will reach about 266Mt in 2025. This is mainly due to population growth, an expected economic growth of 5%, and a 7% increase in electricity demand. By 2030, the IEA predicts that Indonesia's coal demand will increase to 337Mt, with electricity and metal processing industries accounting for the majority of the new demand. By 2030, coking coal consumption will grow by over 60%, making Indonesia the largest coal consumer in ASEAN and potentially the third-largest coal consumer globally. Combined Coal Policy: Tightening of RKAB, increase in export taxes, and increase in domestic DMO to reduce exports and support coal prices, increase tax revenue The Indonesian government plans to actively regulate supply to support coal prices during the downturn in the coal price cycle by implementing a set of "combined policy" measures by 2026. As the world's largest exporter, Indonesia is expected to directly limit coal exports by implementing policies, reducing the effective global supply of coal in the international maritime market, and raising international coal prices. The reinstatement of export taxes will further squeeze the profit margins of small-scale miners (such as those on Sumatra Island) and weaken their competitiveness, accelerating their closure and exit from the market, intensifying the upward pressure on prices, and directly increasing tax revenue for the Indonesian government's PNBP. New RKAB regulations to tighten Indonesian coal production capacity In November 2025, the Indonesian Ministry of Energy and Mineral Resources announced new regulations on Work Plans and Budgets (RKAB), which introduced a dual penalty mechanism of "immediate suspension + quota reduction for the following year" for overproduction. According to reports from multiple media outlets on January 8th, the Indonesian government may reduce the coal production quota to around 600 million tons in 2026, which will be much lower than the actual production level of 790 million tons in 2025. Guosheng believes that Indonesia's substantial reduction in production as the world's largest coal exporter will be a key force in reversing market balance. This move will directly reduce international market supply, help digest global high inventories, and may catalyze a rapid rebound in coal prices. In addition, with expectations of tightening supply in major producing countries, market confidence is expected to be boosted, providing strong support for international coal prices and significantly improving the profitability of major coal companies. Restoration of coal export taxes, adjustment of mining royalties, and catalyzing further consolidation in the Indonesian coal industry On November 26, 2025, Indonesia announced the end of nearly 20 years of tax-free coal exports and will begin to impose export taxes linked to global prices from 2026. On November 29, tax rates ranging from 1% to 5% were clarified, and in December, it was further detailed to be levied based on coal type and price fluctuations, with proposed tax rates of 5%, 8%, and 11%. According to new regulations issued by Indonesia, coal-related mining royalties will be levied progressively based on different calorific values and extraction methods, linked to Indonesia's published coal reference price (HBA). When the HBA price exceeds $90 per ton and the high-calorific value is between 4200-5200 kcal, miners will have to pay an additional 1% tax, with rates ranging from 5% to 13.5% for open-pit coal mines. The combination of export duties and mining royalties is expected to continue to increase the overall cost of coal mining in Indonesia, potentially leading to faster cost pressures on coal miners in the future, suppressing their willingness to expand production or sell at low prices, and building a more solid long-term bottom for global coal prices from the cost side. Increasing domestic DMO, cost rigidity, promoting reduced production and exports As Indonesia's domestic coal demand continues to grow, Indonesian coal mining companies will increasingly depend on the domestic market, combined with regulatory constraints, leading to a decrease in Indonesian coal exports and the reality of reduced production. According to cost statistics from Indonesian coal companies, the average cost for mainstream coal companies in H1 2025 is $37 per ton (the cost of listed companies is relatively low in the industry). Since 2025, global coal prices have been declining overall. Calculated based on the export price of Indonesian 3800K thermal coal, the lowest selling price in 2025 has dropped to $39 per ton, showing that even without considering transportation costs and taxes, Indonesian "low-quality, high-cost" coal enterprises' profit margins have been sharply compressed or turned negative. The only means of self-rescue for rational mining operators and traders is to "reduce production" or "suspend production" step by step to reverse the supply-demand balance and support prices. Regarding targets It is recommended to focus on CHINA QINFA (00866), which directly benefits from Indonesian coal resources production, growing with a combination of value; recommended to focus on KINETIC DEV (01277), which is based in Mongolia, explores overseas, and expands into the South African coal market; pay attention to Yankuang Energy Group (600188.SH, 01171), which has businesses spanning the Chinese and Australian markets, benefiting from the rising international coal prices and increasing Chinese coal prices, as well as YANCOAL AUS (03668). The expected contraction of exports from Indonesia is likely to reduce supply to the Chinese market. There is an opportunity for Chinese domestic coal prices to exceed expectations, recommending coal companies that are firmly rooted in the domestic market with high performance elasticity, such as Yankuang Energy Group, Jinneng Holding Shanxi Coal Industry (601001.SH), China Coal Energy (601898.SH), Beijing Haohua Energy Resource (601101.SH), Shanxi Coal International Energy Group (600546.SH), Shan Xi Hua Yang Group New Energy (600348.SH), as well as China Shenhua Energy (601088.SH) and Shaanxi Coal Industry (601225.SH), which also have high dividend defensive attributes and leading positions in the industry. Risk warning Indonesian coal policies may not meet expectations, international coal demand may not meet expectations, and Indonesian coal production may exceed expectations.