A research report from Orient Securities indicates that while domestic coal supply and demand in China are expected to be largely stable by 2026, disruptions in the international market could become the primary driver of price fluctuations. Significant disturbances have already emerged from Indonesia, suggesting a potential for coal prices to rise. From a long-term perspective, global coal trading costs are projected to gradually increase, which will provide underlying support for domestic coal prices in China. High-quality coal companies have previously been valued primarily for their "bond-like" characteristics; however, as the likelihood of coal price increases grows, their valuation is expected to evolve to include a "coal price call option" component. The market's recognition of this optionality value remains relatively limited at present. Key viewpoints from Orient Securities are outlined below.

Indonesian mining companies have suspended spot coal exports. Reports indicate that Indonesian mining officials stated on Tuesday that miners have halted spot coal exports following the government's proposal for substantial production cuts. Last month, Indonesia issued production quotas to major miners that are 40% to 70% lower than the 2025 levels, as part of its strategy to bolster coal prices. The country's primary industry association has opposed this move, warning that it could lead to job losses and mine closures. This development is anticipated to provide a significant near-term boost to coal prices and market expectations.

For upstream players, the Indonesian government's reduction in production quotas has forced miners to adopt a defensive strategy. Uncertain about future export quotas, miners have proactively suspended spot contracts, opting to wait for policy clarity before resuming spot price offerings. For midstream and downstream participants, who previously held a pessimistic consensus on coal prices, inventory building willingness has been low, resulting in stockpiles that are below seasonal averages. The current event, introducing uncertainty into spot supply availability, is likely to drive these players to increase their inventory levels. Recently, Indonesian coal prices have demonstrated notably stronger momentum compared to domestic Chinese prices.

Medium-term uncertainties remain considerable, as Indonesia's actual coal production has frequently exceeded initial annual plans. The last submission period for RKAB (Work Plan and Budget) was from late 2022 to early 2023, but Indonesia subsequently allowed companies to submit one RKAB amendment by July 31, 2023. Furthermore, the validity period of the RKAB was extended from one year to three years in the second half of 2023, before reverting to one year in the second half of 2025. We are currently in the approval phase for the 2026 RKAB, and some analysts believe there is still a high probability of further changes. Historically, since 2016, Indonesia's actual coal output has significantly surpassed RKAB quotas or government targets in most years.

The long-term outlook appears favorable for coal price appreciation, as the Indonesian government has a strong incentive to support higher prices. According to IEA statistics, the cost levels for low-cost Indonesian coal mines in 2025 are not significantly different from 2024, but costs for high-cost mines have risen markedly, putting substantial profit pressure on small and medium-sized mines. As thermal coal is Indonesia's top export revenue earner, contributing significantly to tax revenues, royalty fees, and employment, the government is motivated to increase income. To this end, the Finance Minister has stated plans to impose an export tax on coal starting in 2026, with the tax rate adjusted according to global price movements. Considering both cost structures and Indonesia's fiscal objectives, the long-term trend of rising export costs for Indonesian coal is clear. Consequently, the cost of China's coal imports from Indonesia is expected to maintain an upward trajectory over the long term.

Investment recommendation: Orient Securities recommends China Shenhua Energy, China Coal Energy, Shaanxi Coal Industry, and JinKong Coal Industry. Risk warnings: Potential economic slowdown; higher-than-expected hydropower output; a sharp decline in international coal prices; policy implementation falling short of expectations.