Geopolitical tensions in the Middle East could provide positive sentiment for coal prices, although the magnitude of the impact will largely depend on the duration of the conflict. Directly, the effect on global coal trade is relatively limited as the Strait of Hormuz accounts for only around 1–2% of global coal trade.

However, the strait plays a far more crucial role in the global energy market as it serves as a key export route for LNG from the Middle East, which accounts for approximately 23% of global LNG supply. Therefore, the impact on the coal market is more likely to occur indirectly through higher LNG prices.

In several Asian countries such as Japan, South Korea, and Taiwan, LNG contributes around 30–40% of electricity generation. When LNG prices rise significantly, power utilities tend to switch to coal as a more economical alternative. A similar dynamic occurred during the energy crisis following the Russia-Ukraine War, when reduced Russian gas supply drove a sharp increase in gas prices and ultimately boosted global coal demand.

While potential disruptions to LNG supply from the Middle East could have a meaningful impact, the key difference lies in the nature of the disruption. The supply shock caused by the Russia–Ukraine war was structural and long-lasting, whereas disruptions related to the current Middle East tensions are generally expected to be more temporary. As a result, coal prices may receive cyclical support, but are unlikely to revisit or surpass the 2022 peak of around US$450 per ton.

In this context, the coal sector remains attractive with an overweight recommendation, particularly for companies with strong exposure to low-to-mid calorific value coal, which is widely used by power utilities across Asia. One of the preferred names is Adaro Andalan Indonesia (AADI), which is considered well-positioned to benefit if elevated LNG prices encourage fuel switching from gas to coal.

The performance of Adaro Andalan Indonesia (AADI) is expected to begin recovering in 2026. Net profit for 2026 is projected to reach around US$811 million, representing ~5% year-on-year growth, assuming stable production of around 70 million tons and a ~6% increase in average selling price (ASP) to US$68.8/ton. This assumption is supported by ICI-3 prices reaching around US$72.6/ton in March 2026, reflecting tightening seaborne coal supply following Indonesia’s domestic production cuts under the RKAB policy, as well as higher oil prices amid Middle East geopolitical tensions.

The company also has high sensitivity to coal price movements, where every US$1/ton increase in export ASP could boost net profit by around 3%. If ICI-3 prices remain at current levels through 2026, there is potential upside to earnings projections. Currently, AADI trades at an attractive valuation of around 6x 2026F PER and 4x EV/EBITDA, which does not fully reflect its low production cost profile, strong net cash position, and potential ~7% dividend yield. In addition, RKAB-related production cuts that may tighten global supply, combined with Newcastle coal prices approaching US$140/ton, suggest that the coal price environment remains supportive and could act as a positive catalyst for a near-term re-rating of AADI’s valuation.