Risks loom for Australian thermal coal as growth markets stall
Energy transition hits turning point in China and Southeast Asia
Key Takeaways:
China has been the major growth market for thermal coal exporters, and alongside Southeast Asian markets has more than offset declining demand in more mature markets.
However, China's energy transition has reached a major turning point, achieving a net decrease in emissions in the last year and a likely peak in coal use for power generation.
Thermal coal demand is facing many headwinds in China and Southeast Asia as renewable energy and battery costs continue to plummet, and investments in gas and nuclear increase. Increases in coal generation capacity will not necessarily lead to increases in coal demand.
Amid increasing domestic production, China's national coal industry association expects that, compared with 2024, thermal coal imports will drop by 22% in 2025, and by more than one third by 2030. Australia will face increasing competition for those declining imports from closer suppliers.
9 October 2025 (IEEFA Australia): Australia’s coal industry faces an increasingly bleak outlook amid faltering demand and shifting supply patterns among the key growth markets for its thermal coal exports, according to a leading independent think tank.
A new briefing note from the Institute for Energy Economics and Financial Analysis (IEEFA) reveals how international demand for thermal coal is facing growing headwinds. In recent years, China has become the largest single driver of global coal demand, with significant growth also seen in Southeast Asian markets. This has offset declining demand in more mature markets such as Japan, South Korea and Taiwan.
However, IEEFA’s research highlights changes to the energy and supply mix in these markets that will have profound implications for Australian thermal coal exporters.
Amandine Denis-Ryan, CEO, IEEFA Australia and the report’s lead author, explains: “China’s energy transition reached a major turning point in the first half of the year: its power emissions fell by 3% as growth in solar generation counterbalanced the rise in electricity demand. Total coal consumption also dropped, with use of fossil fuels reaching plateaus in other areas too.
“This is indicative of a pattern that we’re seeing across the region, as renewable energy and battery storage become more cost-competitive than coal-fired power generation. Investments in gas and nuclear are also increasing in the region, further eroding demand for coal.”
Despite a large pipeline of new coal power plants in China, utilisation rates are expected to drop, leading to a structural decline in coal demand. Average utilisation rates of coal power plants have already dropped to just around 50% in 2024 and are forecast to halve by 2050.
In Southeast Asia, the pipeline of new coal power generation has significantly declined in recent years as countries move away from coal towards renewables and gas. There is now 10 times more renewable capacity and three times more gas capacity in the pipeline than coal capacity.
While coal producers have flagged carbon capture and storage (CCS) as a potential lifeline for coal in a decarbonising world, its persistently high costs and technological challenges make it an unlikely pathway for coal-based generation. It is likely to be more costly to install CCS in an existing coal power plant than to build new renewable and storage assets to replace the plant.
Meanwhile, China is increasing its focus on domestic coal production, as well as shifting to suppliers closer to home such as Indonesia and Russia. In June slowing coal demand growth combined with continued increases in domestic production led to Chinese coal imports slumping to levels not seen since 2023. Compared with last year, China’s national coal industry association expects imports to drop by more than 20% this year and by more than one third by 2030.
“Indonesia, the leading supplier of thermal coal to China and Southeast Asia, has captured the majority of the growth in thermal coal imports into both markets,” says Denis-Ryan. “China also nearly tripled its imports of Russian coal following the invasion of Ukraine.”
Hopes of these trends reversing with a shift to more advanced and efficient coal plants are likely to be met with disappointment, with financial drivers favouring the use of lower-grade coal such as that supplied by Indonesia and produced domestically.
“Coal’s dominance in Asia’s energy mix may soon plateau or even go into decline, while supply competition increases,” says Denis-Ryan. “Ultimately, the changing landscape of energy generation in Asia paints a grim picture for seaborne thermal coal exporters like Australia.”
Read the briefing note: Australian thermal coal producers are losing their growth markets
Media contact: Amy Leiper, ph 0414 643 446, [email protected]
Author contacts: Amandine Denis-Ryan, [email protected]
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)
