Coal’s 2026 shock came from outside the coal market

China illustrates how the shock is interacting with domestic supply constraints. Safety inspections following a fatal mine accident in Shanxi in May 2026 have reduced production, tightened the domestic market and increased the need for imports. Bloomberg reported that Chinese coal output was down by 3.2% nationally through August and 13% in Shanxi. GlobalData expects China’s full-year coal production to fall 1.8% to 4.38bt in 2026, its first annual decline since 2016.

Bloomberg Intelligence expects the resulting coking-coal supply squeeze to persist into 2027, with additional imports from Mongolia, Australia and Russia helping to offset the shortfall. Because China is both the world’s largest coal producer and importer, domestic supply shortfalls rapidly ripple across seaborne markets.

Beijing’s agreement to buy at least ten million tonnes (mt) of US coal in 2027 and again in 2028 is notable, although modest in volume. Bloomberg notes that 10mt represents around 2% of China’s coal imports and only a small fraction of its roughly 5bt of annual consumption. GlobalData says that China imported 307.3mt of coal in 2025, while imports in the first seven months of 2026 were already 4.2% higher year on year. More important for the wider market is whether China remains an incremental buyer while domestic production recovers.

India reveals another way in which the gas and power shock is affecting coal demand. Weak hydropower and declining solar output after sunset have forced coal plants to compensate for gaps in electricity supply. Bloomberg reported that coal inventories at grid-connected Indian power stations had fallen to their lowest level in almost three years, while evening power shortfalls reached 7.7GW in September.

The episode shows that coal can fill gaps when other power sources fall short, ensuring that India remains an important coal market despite the growth of renewables. GlobalData expects Indian coal consumption to rise by 1.5% in 2026 to 1.25bt, with the power sector remaining the main source of demand. It also expects production to increase by 7.9% to 1.17bt.

Government restrictions on mining quotas and tighter management of exports have reduced availability from Indonesia, the world’s largest coal exporter, while domestic coal consumption continues to climb, driven by energy-intensive industries such as nickel processing.

Bloomberg reported that Indonesian exports had fallen to a five-year low and that Chinese imports from Indonesia were down by 25% in 2026. GlobalData expects Indonesian production to fall by 13% in 2026 to 710.8mt, while domestic coal consumption is forecast to rise by 1.3% to 307.1mt. Higher gas prices mean tighter Indonesian coal supply could push Asian coal prices higher, as buyers have fewer alternatives.

The IEA notes that Australian producers appear best-placed to fill part of the gap created by lower Indonesian production. GlobalData expects Australian coal production to rise by 2.4% in 2026 to 470.4mt, although it forecasts production will decline over the longer term as mines close. The closures reflect Australia’s ongoing shift away from coal as part of its environmental policies aimed at reducing reliance on fossil fuels.

For mining operators, the core question is whether current price strength reflects a durable structural shift or an energy-shock windfall that will fade when gas logistics normalise.

The push and pull factors in 2027 are more complicated than a simple contest between coal and renewables. A recovery in LNG flows through Hormuz, continued renewable deployment and a gradual recovery in Chinese coal output would pull demand and trade lower. Prolonged gas market disruption, another weak hydrological season or sustained supply restrictions in Indonesia could pull in the opposite direction.

Reuters reported in early October that LNG shipments through Hormuz reached their highest monthly level since the conflict began in February, although flows remained well below pre-conflict levels.

Before the Hormuz-induced energy shock, coal’s long-term outlook was largely shaped by the drive to move power generation and steel-making away from coal. The disruption has added another layer, with energy security, gas prices and coal supply constraints now playing a more immediate role in the market.