Indonesian quota cuts, Middle East war fears put Asian thermal coal markets on edge

• Indonesian supply curbs trigger sharp Asian thermal coal rally
  
  
• Middle East tensions to lift freight costs, widen oil-coal spreads
  
  

February 2026 witnessed a powerful price rally across Asian thermal coal markets, and expectations are that the uptrend will continue. Reductions in Indonesian production quotas and rising tensions in the Middle East could lift freight costs and drive up coal demand in markets dependent on LNG, leading to supply concerns for Asian importers.

To illustrate, by late February 2026, Indonesian 3,800 NAR coal prices surged 15-20%, Australian 5,500 NAR climbed $10-12/tonne (t) (13-15%), and South African prices rose for the seventh consecutive week.

Australian 6,000 NAR Newcastle coal consolidated from $109-111/t in late January to a confirmed trade at $115/t in mid-February, with the bid-offer range settling at $115-118.50/t by the month-end. The 5,500 NAR Australian grade saw even sharper gains, jumping from $76-78/t in late January to $88/t by the month-end.

Indonesian grades followed suit. 5,000 GAR traded at $66-69/t in early February, with March offers reaching $80/t by month-end. 4,200 GAR climbed from $50.30/t in mid-February to $54/t by 26 February, with an unconfirmed trade at $57/t.

South African FOB Richards Bay 5,500 NAR rose by $3/t w-o-w to $90/t on February 26. Trade indications were heard between $88-91.50/t for March-April cargoes.

Chinese domestic prices reinforced the rally. Qinhuangdao 5,500 NAR FOB rose 6.4% to RMB 745/t, while 6,000 NAR gained 6% to RMB 864/t. Import tenders for Indonesian 3,800 NAR jumped from RMB 435-455/t in late January to RMB 505-529/t by the month-end, with a confirmed award at RMB 525/t.

By late February, however, market momentum stalled. Bid-offer spreads widened as buyers resisted high offers. Chinese utilities turned to cheaper domestic coal amid ample port stocks of 25 days. Indian buyers also stayed on the sidelines, unwilling to match offers.

Supply squeeze collides with resilient buying

The rally was primarily supply-driven. Indonesian production faced a perfect storm of challenges. Government delays in approving annual work plans (RKAB) created uncertainty, with several large miners receiving quotas 40-70% below their requests. Many miners were already sold out, while others awaited approvals and could not commit to forward sales.

Physical supply faced additional pressure. Persistent heavy rains disrupted Kalimantan mining operations. Road transport bans in South Sumatra restricted coal movements. The approaching Ramadan slowdown further reduced mine activity. These factors combined to create significant supply tightness across all grades.

Demand-side factors provided the impetus for price increases. Chinese buyers returned after the Lunar New Year with substantial procurement needs, reflected in steadily rising tender offers throughout the month. Rising domestic Chinese prices made imports attractive even at higher FOB levels.

Indian demand remained robust, particularly from the sponge iron sector for South African coal. Richards Bay stocks depleted rapidly as end-users restocked. Pakistani buyers also sought South African tonnages due to reduced Afghan supply.

Indonesian supply constraints pushed buyers towards alternative origins, supporting South African and Australian prices. Suppliers across all regions raised offers in tandem, recognising the tightening market dynamics.

Freights added to delivered costs. Key routes from Indonesia to India and South Africa to Pakistan saw increases of 40 cents to $1.65/t during the month, supported by limited vessel availability and firm Pacific market sentiment.

War risk, freight shock, and the next phase of rally

The outlook has been fundamentally reshaped by the Middle East conflict that erupted in late February. Military strikes and Iran's closure of the Strait of Hormuz, a choke point handling 20% of global oil, introduce multiple channels affecting coal markets.

Freight costs will likely rise significantly. Even coal shipments not transiting the strait face higher rates through risk premiums, vessel re-routing, and increased insurance costs. Routes from South Africa to India and Australia to the Middle East will be particularly affected.

Higher oil prices widen oil-coal spreads, making coal more competitive for power generation and industrial use. Industries such as cement manufacturing can adjust fuel mixes based on relative economics, potentially increasing coal demand.

The strait closure threatens LNG exports from Qatar, a major Asian supplier. Countries reliant on Qatari LNG may shift towards coal for power generation if gas supplies are disrupted or prices spike. This could bring additional coal demand from price-sensitive utilities across Asia.

Indonesian supply constraints will persist at least through March. RKAB final approvals are not expected until late March or early April. Ramadan continues to slow mine operations. Even with eventual approvals, the disruption to forward contracting will take months to resolve.

Demand fundamentals remain supportive. Chinese industrial activity post-holiday drives continued consumption. Indian sponge iron demand stays steady. Pakistani cement and power sectors maintain firm requirements.

The combination of existing supply tightness and new geopolitical risks suggests prices may push higher. Extended strait closure could add 15-25% to freight costs, embed a $5-10 risk premium in trades, and generate additional coal demand from LNG displacement. Australian 6,000 NAR could test $130/t, with Indonesian low-grade coal breaking above $65/t.

Longer term, these events will reshape procurement strategies. Asian utilities will diversify supply sources, increase term contracting, and maintain higher inventories. A structural geopolitical risk premium may become embedded in coal pricing, establishing a higher long-term price floor.