Strengthening El Niño May Reshape the Coal Market Supply-Demand Balance
Time:2026-08-05 17:11:47 Source:
As the El Niño phenomenon continues to intensify, the global coal market is facing growing challenges. According to the China Meteorological Administration, the current El Niño event over the Pacific Ocean could become the strongest in nearly 150 years and is expected to persist at least until next spring. The World Meteorological Organization (WMO) has also projected that global average temperatures between 2026 and 2030 are highly likely to remain at or near record highs.
As the world's largest thermal coal exporter, Indonesia is among the countries most exposed to the combined impacts of El Niño and prolonged drought. Indonesia's Meteorological, Climatological, and Geophysical Agency (BMKG) stated that the current El Niño has reached a strong level and could intensify further into a very strong event, increasing the risk of prolonged drought across many regions of the country. The current El Niño is expected to last until around May 2027. According to BMKG, July 2026 was Indonesia's driest July since records began in 1991, with 306 weather stations reporting more than 60 consecutive days without rainfall.
Indonesia's coal industry relies heavily on inland river transportation, particularly in Kalimantan and Sumatra, where many mines are located far from the coast and depend on barges to transport coal to export terminals. Historical experience during the 2015 El Niño and the 2019 dry season showed that falling river water levels forced barges to reduce loading volumes to avoid grounding, leading to higher transportation costs, lower shipment volumes, longer loading cycles, and delivery delays. Even if annual coal production remains unchanged, reduced logistics efficiency can tighten spot coal availability in the short term and constrain export supply.
In fact, Indonesia's coal supply has already begun to tighten this year. Data from the Ministry of Energy and Mineral Resources (MEMR) show that coal production totaled 367 Mt in the first half of 2026, down 4.2% year on year. Meanwhile, figures from Statistics Indonesia indicate that coal exports reached 232 Mt during the same period, a decline of 3.2% from a year earlier, reflecting an emerging tightening trend in supply.
At the same time, the high temperatures and drought associated with El Niño are increasing global coal demand. According to market analysts, hydropower generation across major Asian markets—including Japan, South Korea, India, Bangladesh, Vietnam, the Philippines, and Malaysia—fell by a combined 13 GW year on year in June 2026. In India, electricity demand increased by 24.3 GW, while hydropower output declined by 6.3 GW, with coal-fired generation rising by 20.7 GW to offset the shortfall. In Vietnam, coal-fired generation increased by 7.1 GW year on year, also compensating for reduced hydropower output. If El Niño persists, hydropower generation across Asia is expected to remain below normal during the third quarter, supporting continued growth in coal-fired power generation.
However, the impact of El Niño on China's coal demand has yet to fully materialize. Rainfall has been above normal across much of China this year, while the expected rebound in temperatures has not yet emerged. According to CCTD's high-frequency monitoring data, average daily coal consumption at coastal power plants in July was 2.3% lower than a year earlier. Going forward, close attention should be paid to whether unusually hot weather develops in late summer and autumn, as this could become a key factor influencing domestic thermal coal demand and market trends.
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