Hazel Ilango | December 2025
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Regional buyer markets may cushion the business slowdown but the long-term outlook points to limited upside.
Indonesia’s coal sector may be hitting the limits of market diversification. Its closest customers, in East Asia, Southeast Asia and India, are each posing challenges that will stymie growth over the long run.
Within this Asian customer base, China is by far the biggest factor capable of scuppering export prospects. The leverage it wields is 43%, the share of total Indonesian coal shipments in 2024.
The risk of over-reliance on a single market came uncomfortably close in June 2025, when China-bound exports plummeted 26% year on year, triggering falling prices, oversupply, and negative net income growth for top producers.
As the Energy Shift Institute has highlighted in its Part 1 report in October, these signals point not to a temporary slowdown but to a long-term erosion of competitiveness.
Consequently, industry leaders are stressing a stronger focus on markets outside China. The Indonesian Coal Mining Association (APBI) has expressed resolve to protect its turf in Southeast Asia even as new competitors from Australia, Russia and South Africa eye a piece of the pie because of the softening demand from China and India.
ASEAN is no China – and it is already learning to outgrow coal
Now, the Indonesians aim to redirect exports to Malaysia, the Philippines, Thailand and Vietnam. Rather than driving real business growth, Indonesia is merely reshuffling buyers to offset declining demand. While this strategy provides short-term revenue relief, it does not address deeper structural challenges. Here is why:
Scale. In the first half of 2025, Indonesia exported 84 million tonnes of coal to China, even after a 21% year-on-year decline. By contrast, exports to the Philippines, Vietnam, Malaysia, and Thailand combined amounted to only 55 million tonnes.
To put China’s import reduction in perspective, the 23 million tonnes drop from the same period in 2024 alone was equivalent to 43% of Indonesia’s total exports to these four ASEAN countries (Figure 1). This indicates China’s coal consumption and energy system is unparalleled in size.
Incremental growth across these power-hungry markets, particularly Vietnam and Malaysia, could partially absorb displaced Indonesian supply, even if not at China’s scale. The key question is therefore not whether substitution is possible, but how quickly ASEAN demand can expand to offset China’s gradual contraction.
As of September 2025, and focussing on the power sector, even with substantial planned additions, new coal-fired power demand across Indonesia, Vietnam, the Philippines, Thailand and Malaysia combined is less than 25 gigawatts (GW), a fraction of China’s 484GW pipeline (Figure 2). Such incremental demand cannot match the sheer scale of China. Smaller regional markets remain too limited to absorb the volumes being displaced by China.
Indonesia itself is a case in point. Domestic coal demand is projected to rise by around 6% in 2025, about 14 million tonnes from 232 million tonnes in 2024. This is driven by higher consumption in the metal processing and power generation sectors.
However, supplying coal for power generation has become less attractive for miners, given the unchanged capped price under the Domestic Market Obligation (DMO) and rising production costs under stricter domestic regulations.
The country’s coal capacity of 58 GW absorbs only limited output, which is why exports remain crucial, particularly to China and India. As these two key buyers pursue energy security, higher efficiency and clean energy, Indonesia will feel the strain to sustain export volumes – and the associated fiscal and policy mechanisms.
Evolving energy mix. Like China, Southeast Asia is also signalling diversification albeit at a much slower pace. Clean energy and gas will increasingly make up generation capacity, reflecting a more diversified energy mix (Table 1; Figure 2).
Some estimates suggest that gas can form nearly 30% of Southeast Asia’s primary energy mix by 2050, surpassing both oil and coal. Whether this materialises remains to be seen, as declining domestic gas output means many countries will likely need to rely on expensive and volatile LNG imports. At the same time, the buildout of new coal power plants is becoming increasingly difficult due to policy constraints and tightening financing conditions.
Coal no longer holds a dominant position as fuel choices have diversified. The implications for Indonesia are significant. Regional demand for coal is likely to plateau and become more selective, akin to China’s decoupling of fossil fuel demand growth from energy usage since the 2010s, which reshapes coal trade patterns and long-term growth prospects.
Early warnings of structural risks from China emerged as far back as 2019, yet were largely overlooked as post-pandemic price surges eclipsed the threat. By ignoring similar signals in Southeast Asia, Indonesian producers risk repeating the same pattern of prioritising short-term gains over long-term competitiveness.
Policy and climate commitments. As Malaysia, the Philippines and Thailand reduce coal in their power mix and expand gas and clean energy capacity (Table 1), their dependence on coal imports are expected to gradually ease.
Vietnam presents a slightly different case, phasing out inefficient coal plants and capping new coal projects. This is more calibrated to contain coal expansion rather than to pursue a major diversification or transition in the near future.
While these policy shifts may take time to deliver measurable outcomes, China’s experience offers a clear precedent. Its decision to phase down coal use under the 15th Five-Year Plan (2026-2030), first announced in 2020, is now reshaping domestic usage and global trade. What began as a gradual policy signal has since translated into reduced coal imports and accelerated clean energy investment.
As Southeast Asian economies take forward their own climate commitments, similar trends are likely to emerge over time – gradually, but decisively.
Energy or economic security. Both China and India have intensified energy security policies – prioritising self-sufficiency and reducing import dependence – which has already weakened the long-term outlook for seaborne coal. As other emerging markets follow suit, reliance on coal exports will turn from strategic advantage to structural vulnerability.
A clear historical lesson comes from the 2005 oil price crisis. When global prices surged, Indonesia’s dependence on imported oil created a severe energy security challenge. Soaring fuel subsidies and rising import bills strained public finances and destabilised the trade balance.
The crisis exposed the risks of relying too heavily on one energy source and on external market dynamics. As a result, Indonesia implemented the National Energy Policy 2014 (KEN 2014), emphasising energy diversification into coal, efficiency and conservation.
Today, Indonesia faces a mirror-image risk. Instead of import dependence, the country is highly export-dependent on coal revenues from a handful of key markets and wants to remain so, given the focus on Southeast Asia. If demand or prices fall, the resulting fiscal and regional shocks could undermine economic security.
Choice of relief or resolution
Indonesia’s plans to redirect coal exports to Southeast Asia is a stop-gap response to China’s import slowdown. Together, Malaysia, the Philippines, Thailand and Vietnam are still no match for China’s import capacity.
Geographic proximity and growing power demand are expected to sustain Indonesian coal exports in the near term, but the ceiling is low. Most Southeast Asian markets already source 73–99% of their coal from Indonesia – leaving little room for further growth. Even if Indonesia captured all remaining regional demand, the absolute increase would be modest (Table 1).
By 2027, developing economies are projected to drive around 85% of additional global electricity demand, with China contributing more than half of these gains. Yet, this growth does not necessarily translate into higher coal use. In ASEAN, evolving climate polices and power demand is increasingly met by clean energy and gas, tightening the space for imported coal.
Indonesia may be diversifying its buyers, but those same buyers are diversifying away from coal. For growth-focused investors and producers, coal investment hinges on robust and sustained demand expansion. Indonesia’s current push into ASEAN markets offers some upside, but it is inherently limited.
The broader lesson, reflected in China’s own transition, is that temporary fixes such as pricing, production cuts and market diversification cannot substitute for structural adaptation. Revenues from today’s coal momentum should be strategically redeployed into commercially viable activities that strengthen long-term resilience.
Without such reinvestment, these short-term gains from Southeast Asian markets would merely delay the structural decline, leaving the Indonesian coal industry and government vulnerable to revenue shocks and a shrinking global coal market.
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.