Positive developments for coal prices

As of late January 2026, Newcastle coal price recovered to around USD108/t, a 2% rebound m-m from the early-January lows. Indonesian Coal Prices (ICI) also rebounded 4.5%-5.5% m-m for mid-to-low calorific value (CV) coal (3,400-5,000 GAR), while high CV coal was up ~2% m-m (5,800-6,500 GAR). The recovery, we note, is supported by: 1) Indonesia’s aggressive production quota cuts, 2) short-term logistical and weather disruptions in East Kalimantan that are constraining Indonesian coal shipments, and 3) seasonal demand resilience from Indian buyers where domestic coal shortages and robust power demand are sustaining steady import appetite for low-CV coal. Furthermore, Australian production faces weather and infrastructure constraints, with most alternative suppliers operating near maximum capacity.

Indonesia’s ‘quota cut’ plan poses an upside risk for low-CV coal price

As the world’s largest thermal coal exporter, with a 32–35% share of global seaborne coal trade, Indonesia’s decision to cut coal production by 190Mt — from 790Mt in 2025 to 600Mt in 2026—marks a significant structural tightening in regional supply dynamics. We see compelling upside risk for low-CV coal prices as we believe the severity of quota cuts will largely impact small miners (up to 40–70% cut for smaller miners), which may force marginal operations to shut down under rising fixed costs ultimately cutting more production than planned prompting better pricing to continue its operations. Furthermore, the need to fulfil domestic market obligation (DMO) amid growing PLN demand compels miners to divert proportionally more tonnage to the domestic market, thereby further constraining exportable supply and clouding the seaborne balance.

Retain tactical bullish stance on Indonesia coal sector: order of preference AADI (Buy), PTBA (Neutral)

We have a tactical bullish stance on the coal sector, as we estimate that Indonesia’s tightening measures are likely to support 3,400–4,200 GAR coal prices in the near term. Our sensitivity analysis shows that earnings are more sensitive to coal prices than volume changes – a 1% change in ICI price/production will change earnings by 3%/1%, for typical coal operation. We maintain our positive view on Adaro Andalan Indonesia (AADI IJ, Buy) and have a Neutral rating on Bukit Asam (PTBA IJ). AADI is our top pick given its valuation, and low-cost structure, while PTBA should also benefit from relatively favourable quota treatment given its critical role in supplying PLN. Downside risks include changes in government regulations, volatility in coal prices, weather related disruptions.

 

 

Fig. 1: Coal prices

Fig. 2: Indonesia – coal dividend yield comparison

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Michael Wildon Ng (michael.wildon@verdhana.id)

Nizam Syafik (nizam.syafik@verdhana.id)