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Thermal Coal Prices Set to Outperform Forward Curves, Morgan Stanley Says

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Thermal coal prices are projected to rise above forward curves in the second half of 2026, driven by resilient gas-to-coal switching and tighter Chinese import demand, as fears over Indonesian production quotas prove overblown, investment bank Morgan Stanley said in a note Tuesday.

While coal prices are up 25% overall, they have trailed natural gas due to high-caloric supply and soft Chinese and Indian buying, the bank said.

However, analysts argue that market fears regarding Indonesia's export supply are overplayed. While Indonesia has introduced new production quotas for the latter half of 2026, these measures prioritize domestic supply rather than an aggressive expansion of exports, it noted.

Morgan Stanley estimates a minor 6% year-on-year drop in Indonesian thermal exports for the period, noting that the quota adjustments align with prior expectations and do not pose a severe downside risk.

Additional price support is expected as China's import arbitrage reopens heading into Q4 driven by destocking, persistent mine safety curbs, and higher domestic pricing, according to the note.

Furthermore, ongoing energy flow disruptions in the Middle East are keeping global liquefied natural gas markets tight. This dynamic encourages sustained gas-to-coal switching in the power sector despite mild weather forecasts, the bank noted.

Overall, Morgan Stanley maintains a marginally bullish outlook, pricing Newcastle 6000 kcal coal at $140 per ton for late 2026 and early 2027, about $5 above the current forward curve with key risks remaining centered around weather anomalies and consumer price sensitivity.

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