2026 Indonesian coal outlook: Rising risks, limited leverage

Indonesia’s coal sector is facing a widening set of market and policy pressures. Export dynamics are shifting as key buyers increasingly prioritise energy security, favour coal of higher grade and diversify their energy mix away from dependence on coal, one of the country’s major commodities.

On the regulatory side, the introduction of the RKAB (Rancangan Kerja dan Anggaran Biaya) policy on output limits  and coal export tax signal intensifying policy risk that could further erode Indonesia’s competitiveness as a trusted supplier and add to regulatory uncertainty for producers. At the same time, mandatory coal downstream investment for licence extension raises the risk of capital allocation, given the uncertain commercial viability of such projects.

RKAB Policy Context: Shortcomings of adjusting coal output

Total coal exports from Indonesia make up about 6.6% of world coal production. The low percentage and preference higher-grade coal can potentially limit the country’s ability to unilaterally tighten global markets because any supply shortfall can be offset by other exporting countries. Major buyers are also continuing to diversify procurement sources, such as Russian and Mongolian coal, to replace Indonesian coal and expand energy options. Indonesian pricing power is thus constrained, and supply-side interventions become less effective.

Historically, coal and nickel producers have responded to a downturn by adjusting output. Production controls can provide short-term price support and help manage cyclical volatility.

However, such measures primarily address near-term pressures rather than long-term structural risk. They do not counter weakening demand growth, substitution trends or increasing policy constraints in export markets, nor create a new engine of earnings resilience.

The shortcomings of making output changes raise a question: Is it enough to simply manage production, or is a more structural repositioning required?

Sustainable response to growing risk: Adjusting production or diversification?

Companies face a choice between tactical adjustment and structural adaptation, given their constrained pricing power and the rising regulatory risks.

Output control is a useful short-term lever. It can stabilise cash flow, preserve balance sheets and navigate cyclical downturns. However, it does not reduce concentration risk in a commodity facing long-term headwinds.

Diversification, by contrast, is a structural response. Rather than commit more capital to coal expansion or commercially uncertain downstream mandates, companies can limit high reinvestment in coal while reallocating funds to more viable related sectors.

If executed well, diversification can provide exposure to segments of higher growth while managing risk, because the coal part of the business is able to carry on developing, leaving industrial continuity undisrupted. Diversification can also support the national agenda and its alignment with net-zero goals.

Harum Energy provides a case study of such a strategic pivot in practice. Instead of relying solely on production adjustments, Harum has combined restrained coal reinvestment with strategic capital allocation to nickel, positioning itself across two commodities with differing trajectories within its domain of expertise.

Case study: Harum Energy and its business diversification

Harum was once a pure-play thermal coal producer. The company entered the nickel value chain in 2020, when its balance sheet was strong and coal markets offered peak earnings visibility. Between 2020 and 2025, its nickel operations evolved from a marginal business line into the primary revenue driver.

As at September 2025, nickel accounted for 64.8%, or about USD664 million year-to-date, of consolidated revenue, up from 10.8% in the same period of 2023. This result underscores the speed at which Harum’s earnings mix has shifted away from coal (Figure 2).

In six years of diversification efforts, the company practised a two-pronged strategy: a) managing legacy coal assets and b) strategically allocating capital to a new growth area.

a. Limited high reinvestment in coal expansion

Harum’s coal operations have been deliberately conservative. Beyond routine maintenance and exploration, the only significant expansions in recent years were the 2018 acquisitions of PT Bumi Karunia Pertiwi (BKP) and PT Santan Batubara (SBB). Since its foray into nickel starting 2020, the group has not added major coal assets and has instead streamlined its portfolio, including divesting PT Tambang Batubara Harum, now PT Arkara Prathama Energi.

While the expiry of some PKP2B mining permits in 2020-2025, coupled with reserve constraints, might have played a role, the decision to limit coal expansion also reflected management’s strategic choice to manage risk. This choice included avoiding significant new investment in coal assets, preserving cash and focusing resources on diversification to reduce dependence on a single commodity. The difficulty of securing high-quality coal assets and the continuing uncertainty of China’s coal import policies were push factors.

As a result, capital expenditure on coal has remained limited, averaging around 9% (USD221.5 million) between 2015 and September 2025. Over the same period, coal production and sales broadly tracked the market cycle, peaking at 7.1 million tonnes (Mt) in 2023 before moderating to 6.0Mt in 2024 as prices softened (Figure 3).

The absence of major coal expansion or acquisition, combined with minimal capex and close alignment with the market cycle, shows that coal is maintained primarily as a stable, cash-generating asset rather than a driver of growth.

This prudent approach frees up capital and management attention to pursue higher-growth opportunities elsewhere while ensuring the coal business continues to provide reliable liquidity and support overall financial stability.