Japan'S Thermal Coal Importers Look To Alternative Markets Amid Environmental Pressure, Sanctions

in Dry Bulk Market,Freight News

07/04/2025

Japanese thermal coal importers have been turning away from key traditional supplier Australia toward low-sulfur Indonesian coal in recent years, as well as exploring alternative markets such as South Africa and Colombia, as they seek to diversify supply sources amid a lack of liquidity in high calorific value grades, stricter environmental norms and price pressure.

According to shipping data from S&P Global Commodities at Sea, Japan’s coal imports from Australia dropped to 74 million mt in 2024, down from 82.6 million mt in 2021, with imports from Indonesia rising to 25.8 million mt in 2024, up from 20.6 million mt. Meanwhile, Japanese coal imports from Russia have plummeted to just 800,000 mt last year, from 10.5 million mt in 2021, before the imposition of international sanctions on Russia, in the wake of the latter’s invasion of Ukraine in 2022, according to the CAS data.

“In addition to the invasion of Ukraine, Japan has long relied on high-grade coal from Australia, but upstream investment in high-grade coal in Australia is declining, and an increasing number of companies are downsizing or withdrawing from the coal business, as well as tighter environmental regulations and increased coal exports from Australia to China and other factors are expected to make it difficult to secure stable supplies of high-grade coal in the medium to long term,” according to Michiyo Miyamoto, an energy finance specialist covering the Japan region for the Institute for Energy Economics and Financial Analysis.

She added that the Japanese government is therefore pushing companies to develop other sources of procurement, such as South Africa and Colombia.

One Japanese coal trader also said that, as power plants aim to meet environmental regulations, the buying trend in Japan has shifted toward low-ash Indonesian coal instead of the usual high-ash Australian coal. This change comes as Japanese exporters find it increasingly difficult to sell the leftover coal ash to the domestic cement sector or the South Korea market, which has historically been a reliable outlet, as industrial activities have dropped in both nations.

The trader added that, for the domestic real-estate sector, imported cement remains much more economically attractive than domestic cement, amid its competitive pricing, leading to lower utilization of coal ash.

“Japanese buyers who readily pay premiums for seaborne cargoes are seeking heavy discounts for high CV Indonesian coal,” said one Indonesia-based producer.

Alternative markets

In addition to its more recent focus on Indonesian coal, Japan is also actively seeking alternative markets to diversify its coal supply sources, market sources said.

An India-based trader specializing in South African coal said that Japan has made some inquiries about high-CV thermal coal from the latter country.

It is currently exploring the logistics and technical aspects of utilizing South African coal before making long-term commitments, as its specifications differ from those of Australian coal, the source said.

A mining source based in Australia added that South African coal, due to its cost-effectiveness, is emerging as an attractive option for buyers seeking to minimize energy costs. As a result, Japanese buyers are now evaluating the cost benefits alongside quality considerations.

The CAS data showed that thermal coal imports from South Africa have risen from 200,000 mt in 2021 to 3.1 million mt in 2024.

The Australia-based miner confirmed the shift in Japanese buying patterns, adding that Asian consumers were seeking discounts of approximately $6/mt FOB for Australian high CV coal.

The source said that this demand for discounts is likely to intensify as alternative fuel markets open up and as the falling value of the yen makes imports more expensive amid rising freight costs.

According to Platts data, Australia-origin 5,500 kcal/kg NAR fell to $70.25/mt FOB on April 3, the lowest since June 1, 2021, when it was assessed at $68.05/mt FOB.

Indonesia-origin 5,900 kcal/kg GAR averaged $92.52/mt FOB in 2024, compared with $105.98/mt FOB in 2023.

Platts last assessed Indonesia-origin 5,900 kcal/kg GAR at $83.50/mt FOB on April 3.

Nonetheless, some market sources suggested that Indonesia’s coal reserves may not be adequate to meet Japan’s high demand levels in the longer term. Moreover, traditional boilers are primarily designed to operate with Australia-origin coal, with only newly commissioned coal-fired power plants able to adapt to accommodate coal from alternative sources.

Japan’s future power mix

According to Japan’s 7th Strategic Energy Plan, which was approved on Feb. 18, the share of thermal power in the country’s proposed power generation mix will plunge to 30-40% in fiscal year 2040-41, from 68.6% in 2023-24.

Market sources also said that the country’s expansion in renewable energy sources like solar and wind has not been as promising as expected, while the government’s persistent fossil fuel subsidies make coal-based power generation cheaper despite the depreciation of its currency.

The IEEFA’s Miyamoto highlighted that, although coal-fired power currently accounts for about 30% of Japan’s supply mix, the 7th Strategic Energy Plan does not set a power supply mix target for coal-fired power because of the uncertainty of implementing new technology.

“In order to prepare for the forecast increase in electricity demand, coal-fired power is being secured as a backup power source while ammonia co-firing and CCUS are being introduced,” she said. “However, if this reliance continues and decarbonization technologies are not realized, it is expected to be difficult to achieve the greenhouse gas reduction targets of the SEP and the target to increase the share of renewable energy.”

Source: Platts