China’s crackdown on low-grade coal puts Indonesian exports at risk

China is likely to slash imports of low-grade coal from Indonesia this year, dealing a blow to one of its key suppliers as weak domestic demand, surging output, and climate goals reshape the world’s biggest coal market.

Indonesian coal, particularly lignite or brown coal, has been a staple of China’s thermal coal mix over the past few years. But this trade is now being undercut by collapsing prices and shifting policy priorities in Beijing.

Reutersreported that Li Xuegang, a senior official at the China Coal Transportation and Distribution Association, said at the Coaltrans China conference in Beijing that the country’s tighter emissions rules would “slash demand for low-heating and poor-quality grades”.

“Imports of low-calorie coal are no longer economically viable given the current price levels and China’s domestic supply,” said Li, warning that the fall in overall coal imports in 2025 could be steeper than expected, possibly dropping by 50 to 100 million tonnes compared to 2024’s record 543 million tonnes.

Why is Indonesian coal in the firing line?

Indonesia, one of China’s top overseas coal suppliers, is particularly vulnerable to the shift. The bulk of its exports to China are lignite, a highly polluting, low-energy fuel that’s now under scrutiny as China doubles down on decarbonisation.

Chinese utilities had long blended Indonesian lignite with higher-grade coal to power thermal plants, but this practice is losing favour.

China’s domestic coal production surged to 4.7 billion tonnes in 2024. Over the first four months of 2025, China produced 1.58 billion tonnes of coal, which was 6.6 per cent higher than the output booked for the same period a year earlier. In April alone, China produced 3.8 per cent more coal than a year ago, at 389.31 million tonnes.

With stockpiles swelling and renewables taking a growing share of the electricity mix, utilities now have easier access to higher-quality domestic or imported alternatives.

In May, China’s coal imports dropped for the third consecutive month, falling to 36.04 million tonnes from 43.82 million tonnes in April. Cumulative imports for the first five months of 2025 are down 8 per cent year-on-year, official data shows. This trend is expected to accelerate in the latter half of the year.

China’s broader energy landscape

China’s coal policy is now walking a tightrope between energy security and climate commitments. After being hit by power shortages earlier this decade, Beijing approved a wave of new coal power projects to stabilise its grid.

Yet, even as approvals rose again in 2025, thermal power output fell 4 per cent in the first four months, with wind and solar stepping up to meet rising electricity demand.

Renewables now account for 26 per cent of China’s power output, while coal’s share dipped to a record low of 54 per cent in April, according to energy think tank Ember. But coal remains critical, especially with power demand expected to rise due to expanding data centres and high-tech manufacturing.

Domestically, coal production is projected to increase by 70 to 80 million tonnes this year. Officials believe production will only peak around 2027, providing a buffer to reduce imports further.

With local supplies strong and emissions pressure mounting, Indonesia’s once-lucrative lignite exports to China may continue to fade. The result could not only reshape regional trade dynamics but also signal a quiet but significant shift in China’s carbon trajectory.

(With inputs from agencies)