Indonesia's Coal Exports: A Rare Decline Amid Regulatory and Market Headwinds

Indonesia, the world’s largest seaborne coal exporter, has faced a surprising reversal in its coal trade momentum in early 2025. According to data analyzed by Reuters’ Gavin Maguire, thermal coal exports fell 6.2% year-on-year to 40.8 million metric tons (mt) in February 2025, marking a sharp contrast to the growth trends of recent years. This decline, compounded by a broader 10.7% year-over-year drop in first-quarter (Q1) exports to 114.5 million mt, signals growing challenges for the sector.

The Culprits: HBA Pricing Chaos and Demand Slump

The decline stems from a perfect storm of regulatory missteps and weak global demand. In March 2025, Indonesia’s government-mandated Harga Batubara Acuan (HBA) pricing system caused immediate disruptions. The HBA sets minimum export prices and royalties based on coal quality, but its initial March 1 prices were 10–20% higher than market rates, freezing trade. For example:
- 6,322 GAR coal was priced at $128.24/mt FOB, far exceeding global benchmarks.
- Buyers, including China and India, balked at the premiums, leading to stalled negotiations.

While the government revised prices downward by 1.3% to 8.2% by March 15, the damage was done. Sellers faced a bid-offer gap, with buyers still unwilling to meet HBA-linked prices. Meanwhile, rising freight costs and oversupply in global markets further deterred imports.

Demand Downturn: China and India Lead the Slump

Major buyers reduced purchases due to overstocked ports and economic slowdowns:
- China’s coal imports fell 7.3% in Q1 2025 to 87.4 million mt, with Indonesian shipments dropping 11.3% to 48.5 million mt. Beijing’s push to reduce reliance on seaborne coal and boost domestic production played a role.
- India’s imports rose only 3.5% to 13.5 million mt, hindered by competitive pricing from Russia and Australia.

The Vietnam exception stands out: its imports surged 60% year-on-year to 2.15 million mt in early 2025, fueled by industrial growth linked to China’s potential economic rebound. However, this uptick was insufficient to offset declines elsewhere.

Policy Overreach and Miner Pushback

Indonesia’s royalty hikes added to the sector’s woes. A 1% increase in coal royalties—calculated using HBA prices—raised costs for miners, particularly small operators. Industry groups criticized the policy, arguing it would stifle exports. Some miners accepted higher royalties to sell below HBA thresholds, highlighting the tension between regulatory mandates and market realities.

Investor Implications: Navigating Volatility

For investors in Indonesian coal stocks—such as Adaro Energy (ADRO) and Bumi Resources (BUMI)—the Q1 decline underscores risks tied to policy uncertainty and global demand shifts. Key considerations include:
1. HBA’s Long-Term Viability: The pricing system’s rigid structure may struggle in a globally oversupplied market. If HBA adjustments fail to align with market rates, further trade disruptions could follow.
2. China’s Role: Recovery in China’s economy and energy demand will be critical. If Beijing’s imports rebound, Indonesia could regain momentum.
3. Geopolitical Shifts: Competitors like Australia and Russia are gaining market share in Asia, squeezing Indonesia’s pricing power.

Conclusion: A Crossroads for Indonesia’s Coal Dominance

Indonesia’s coal exports face a pivotal year in 2025. The 10.7% Q1 decline—from 128.2 million mt in 2024 to 114.5 million mt—reflects systemic challenges: regulatory misalignment, weak demand, and rising competition. While Vietnam’s growth offers a glimmer of hope, the sector’s future hinges on Beijing’s economic rebound and Jakarta’s ability to calibrate policies like HBA to market realities.

Investors should monitor two key metrics:
1. HBA-linked price adjustments and their alignment with global benchmarks.
2. China’s coal imports—a rebound to 2023 levels (180 million mt annually) would likely stabilize Indonesia’s exports.

Until these uncertainties resolve, Indonesian coal stocks may remain volatile, offering opportunities for contrarians but requiring caution for the risk-averse. The era of unchecked growth for Indonesia’s coal exports may be ending—investors must adapt to the new reality.