Editorial comment
The seaborne thermal coal market has moved beyond the initial Iran-war shock, but the setup still looks far from loose. Lower freight has weakened one feedback loop that pushed Newcastle higher. Yet LNG remains vulnerable and expensive enough to keep coal in the dispatch conversation, Japan is using coal as a security hedge, China has been restocking, Indonesian supply carries policy risk, and El Niño could tighten the regional power balance.
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The war thesis was about more than a geopolitical spike. It was about how LNG insecurity reprices dispatchable fuel. That remains highly relevant for Asia, where coal, LNG, nuclear, renewables, and hydropower compete for power-market share. As Gulf LNG flows struggle to normalise, gas markets should remain tight enough, and coal cheap enough by comparison, to support seaborne prices.
The clearest signal is relative value. Newcastle coal recently traded below 0.5 times its LNG-implied parity price, well below a 10-year median of roughly 0.76 times. That means coal is capturing a much smaller share of the theoretical gas-to-coal switching incentive than usual. Historically, when that ratio has fallen below 0.6 times, weaker LNG prices have more often compressed the parity gap than dragged coal down one-for-one, which means coal has less to give back than LNG-parity economics suggest.
A strong El Niño would raise cooling demand across Asia, while threatening hydropower output. In China, drought risk in southwest hydro hubs – such as Sichuan and Yunnan – would lift reliance on coal and gas. In India, extreme heat or weaker hydro could temporarily interrupt the import-substitution trend if domestic supply and logistics struggle to respond quickly enough.
Over the medium term, seaborne coal demand is unlikely to grow. Demand is not collapsing – coal still accounts for the bulk of power generation in China and India, and those two markets dominate global consumption. But global coal burn can remain high while seaborne demand softens, because the marginal tonne is increasingly coming from domestic mines rather than imports.
India is the clearest structural negative. As the second-largest buyer of seaborne thermal coal, its import behaviour matters. Imports are falling for a third year running, reflecting higher domestic output, a strong 2025 monsoon, elevated inventories, and continued renewables growth. New Delhi’s objective is explicit: avoid non-essential imports where domestic supply can meet the need.
Beijing is also lifting domestic production, but the motivation is energy security and flexible supply. That caps import upside when domestic supply, hydro, and renewables perform well. But, China remains the Pacific basin’s swing buyer. Imports can rebound quickly when domestic coal tightens, hydropower disappoints or Indonesian coal becomes competitive against domestic coastal coal.
That makes Indonesia central. There are signs exports have improved from earlier weakness, yet the rebound is neither pronounced enough nor long enough to remove supply risk. Exports remain down year to date, low-CV prices have risen to multi-year highs, and the country’s export-centralisation policy adds uncertainty. Seaborne supply elsewhere is also likely to slip as mine investment declines.
The result is a more finely balanced market than either bulls or bears suggest. Indian import substitution and China’s domestic supply growth are structural headwinds, but seaborne coal is not simply heading for oversupply. In a smaller traded market, LNG volatility, energy security, China’s swing demand, constrained high-CV supply, underinvestment, Indonesian policy risk and weather shocks all matter more. That can keep coal tighter – and more relevant – than many expect.
