COMMODITIES 2025: China slowdown, rising Indian output look to pressure Asian thermal coal prices

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Strong domestic production and weak industrial output in the top consuming markets of India and China are expected to pressure Asian thermal coal prices in 2025, participants said.

Tariff impact

The market expects that the Chinese economy will fail to see an uptick as the government's stimulus measures underwhelmed the flailing property sector. Coupled with potential tariff concerns following Donald Trump's presidential win in the US mean that China's industrial coal consumption would be subdued in 2025, a Singapore-based trader said.

"The US will most likely increase trade duties on Chinese goods, which will impact China's export market that contributes a large portion to its GDP," another trader based in China said.

If the country's hydropower output keeps rising, thermal coal demand will reduce, the trader added.

China imported around 353 million mt of thermal coal so far in 2024, according to the latest data available in S&P Global Commodities at Sea.

According to Pat see Khoo, a senior analyst at S&P Global Commodity Insights, the country is likely to import around 380 million mt of thermal coal in 2025, slightly less than 2024 imports amid stable domestic supply and moderate coal-based power generation growth.

An S&P Global Ratings report said the US is likely to increase export tariffs on Chinese goods in South Asia.

"We assume the U.S. will raise the effective tariff on Chinese imports to 25% from around 14% currently, starting in the middle of 2025," the report said. It also forecast Chinese GDP growth at 4.1% in 2025, 0.2 percentage points lower than the September baseline.

Fewer long-term contracts to cause volatility

Some traders have been hesitating to sign long-term contracts with China after they lost substantial margins due to the index being rangebound for most of 2024, multiple participants said, adding this could raise volatility in 2025.

"After a change in Chinese buying pattern, 2024 has seen the least volatility in prices in the last few years after the pandemic," an Indonesia-based trader said.

The price of Kalimantan 4,200 kcal/kg GAR coal averaged $54.09/mt FOB in the January-November period compared to $63.50/mt FOB in the corresponding period a year earlier and $86.48/mt FOB in the same period in 2022, data from Commodity Insights showed.

Indian buyers to lean on domestic supply

India's rising domestic supply and the government's emphasis on reducing import dependency are likely to keep industrial purchases limited to the domestic market.

"However, if the e-auction price offered by Coal India Ltd. shows much volatility, industrial buyers might procure higher volumes from the overseas market, especially from South Africa," an India-based trader said.

The sponge-iron sector will continue buying from South Africa due to a firm demand outlook for the steel industry, however, its sustainability will depend on the kind of discounts they receive from Richards Bay suppliers, said a trader.

Coastal power plants reliant on imported coal are expected to increase purchases due to higher power demand in 2025.

Vignesh Sundaram, a principal research analyst with Commodity Insights, forecast total imports to reach around 206 million mt in 2025 due to increased capital spending on infrastructure. However, strong domestic production will likely keep overall imports stable, he noted.

Depleting reserves, logistics hurdles for high-CV coal

Indonesia is set to remain a cornerstone of the Asian thermal coal market in 2025, retaining its status as the world's largest exporter. However, mid- to small-sized miners could encounter challenges due to suppressed global coal prices amid China's hard bargaining stance.

"Indonesia's coal production is projected to remain high, with no significant cuts in export or production targets anticipated," Niko Chandra, corporate secretary at local coal company Bukit Asam, said, adding, "The government has approved a production quota of 917.16 million mt for 2025 and 902.97 million mt for 2026."

Saly Putra, the head of Marketing and Sales at MMS Group Indonesia, said, "We are observing an increase in the availability of heavy mining equipment. Over the past two years, many orders were placed, but as prices have dropped, several miners facing high production costs have had to adjust or reduce their capacity. Consequently, there are numerous idle units in the market, and sellers are prepared to offer them at discounted prices."

Depleting reserves of mid- to high-calorific-value coal in Indonesia could also challenge the availability from single-mine producers, potentially supporting prices for these specific grades.

Australia's position in the Asian thermal coal market remains strong in 2025, supported by mid-CV coal demand from China. A structural supply shortfall in seaborne high-CV thermal coal due to underinvestment and depletion of existing reserves could lead to rising prices, according to the latest market outlook for Whitehaven coal.

Russia's coal exports to Asia are anticipated to face significant challenges in 2025 due to infrastructure limitations and declining production in its major coal-producing area, Kuzbass. Despite these obstacles, Russia continues to be a key supplier of mid- to high-CV coal, particularly to China and South Korea.

"Russian exports will be balanced since Elga started its own railway and port and will increase volumes in 2025," said a large Russian producer.