Hazel Ilango | October 2025
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Indonesian coal firms must wake up to structural headwinds from China. The Indonesian coal story has suffered an export shock inflicted by its biggest buyer, calling attention to structural changes that will threaten business far more than a cyclical downturn.
China carries chronic trade risks for Indonesian coal firms because its self-sufficiency goals and inordinate share of their exports could deal a lasting setback if their business model stays the same, research by the Energy Shift Institute has found.
The headwinds are starting to crystallise. In August, Indonesia’s coal exports to China slumped by 21% from a year earlier.
“Both the companies and the government should take note that the risks to Indonesian business are structural, stemming from China’s own coal mining, energy security needs and switch to renewables,” says Hazel Ilango, coal transition lead at Energy Shift. “Indonesians can’t make these risks go away just by adjusting costs, production or market
diversification. It needs to move past cyclical mode of thinking.”
Indonesia’s coal export outlook is being shaped by pressures on both sides of the equation. On the supply side, weakening price competitiveness, concentrated reserve quality, and shifting domestic policies are testing producer resilience. On the demand side, China’s growing self-sufficiency, preference for higher-grade coal, and ongoing energy reforms now play an outsized role in determining the trajectory of Indonesia’s exports.
At the core of this vulnerability is China’s 43% share of Indonesia’s coal exports. Such a high level of concentration leaves Indonesian exporters exposed to fluctuations in Chinese demand, which could significantly affect firms that rely heavily on this single market.
“As far back as the early 2010s, China began decoupling new power demand from fossil fuel growth, and since the blackouts of 2021 and 2022, its resolve to build energy resilience has only strengthened,” Ilango notes.
Historically, Indonesian coal producers have pulled through cyclical downturns by paring costs, changing mine plans and renegotiating contract rates. These measures were effective in coping with short-term market volatility and exports rebounded reliably, consistent with the nature of cyclical risks.
Fundamental risks are different. They are long-term, non-cyclical forces that can erode competitiveness and require adaptation at the core of the business instead of waiting for the market to recover.
In its research, Energy Shift finds that upsides which once worked in Indonesia’s favour are receding. For example, its competitive prices are coming under challenge. With Chinese domestic producers offering coal at competitive prices, the question now is how much further Indonesian exporters can lower their prices to remain attractive. Their capacity to do so is
increasingly limited, suggesting a narrowing window for Indonesia’s coal to stay competitive against China’s domestic supply.
Indonesian proximity to Chinese coastal grids, a key export strength, is another softening advantage. This accessibility may dim in importance as the Chinese government pours investments into transport links. China’s self-sufficiency drive and preference for better coal are structural factors with the ability to weaken Indonesian market share in the long run.
Adding climate policy into the mix and the pressure on Indonesia’s exports is even more pronounced. Under high-level political support, China has emerged as a leading force in renewable energy development, and by 2024 was already meeting more than three-quarters of its electricity demand growth through clean energy.
“This shows the energy transition is no longer a distant risk; it is materialising and actively shaping the market.” Ilango says.
“Given all these structural forces working against Indonesia, the chances of renewed coal export growth with China are low. Competitiveness will suffer eventually.”
She adds a word of caution for investors. “The key question is whether Indonesian coal companies are still delivering genuine growth or merely keeping their heads above water.”
“When fundamental risks outweigh cyclical risks, the challenge is no longer about weathering market volatility. It is about rethinking the sector’s long-term economic rationale.”
From a government standpoint, timely and coordinated intervention is crucial. With only a limited window to prepare, fiscal support and regional diversification will be key to managing and planning economic transition measures.
The government also relies on coal exports to stabilise domestic prices, such as through the Domestic Market Obligation, which shields competition from renewable energy entry. Indonesia’s ability to maintain these mechanisms may be put into question and policymakers will need to rethink the subsidy framework and recalibrate priorities between short-term price stability and long-term economic resilience.
Energy Shift is of the view that to diversify risk in a controlled manner, government and industry must both be able to tell long-term decline from short-term recovery and act before the window for proactive adaptation closes.
Indonesian coal producers can still leverage their relatively healthy balance sheet to diversify and carry out their transition credibly. The alternative scenario is to be wrong-footed in a reactive cycle that allows themselves to be buffeted by the winds of change swirling in China.
Would Indonesian coal exporters steer their own course or allow external market forces to shape their future? “Acting now would allow the country to transform its current position of strength into a platform of enduring economic and fiscal resilience,” Ilango says.
Hazel Ilango is Coal Transition Lead of the Energy Shift Institute. Her works drive major program initiatives, provides thought leadership and builds industry relationships to align financial systems with Asia’s energy transition goals.