Europe vs Russia
In 2021, coal production in Russia, according to the Ministry of Energy, amounted to 439 million tons. Russia exported a little more than 50 million tons to European countries. It is not yet possible to estimate deliveries for the first half of 2022.
As Finam FG analyst Aleksey Kalachev noted, companies are reluctant to disclose their statements, the Federal Customs Service officially, and the Ministry of Energy unofficially have recently stopped disclosing export data.
“Therefore, one has to rely on fragmentary data from various sources. Thus, according to the Association of Commercial Sea Ports, we see that the volume of coal transshipment in Russian ports in the first half of the year decreased by 4.0% to 97.3 million tons. Apparently, the main decrease should have occurred at the end of the period. The import of Russian coal to the EU countries has been banned since August 1, and before that period, deliveries were made only under contracts concluded earlier than April,” Alexey Kalachev explained.
Kirill Rodionov , an expert at the Institute for the Development of Technologies in the Fuel and Energy Complex, noted that deliveries of Russian thermal coal and lignite directly to the EU countries and the UK have been declining for a long time. Thus, the share of exports over the past four years has decreased from 39% to 26% by 2021, Kirill Rodionov refers to FCS data. Now this indicator is expected to go to zero.
He believes that the rapid reduction of the market by a quarter is a serious loss for Russian coal miners. “And this is already evident from the statistics for May 2022, when the embargo on supplies from the Russian Federation was already announced: according to the Central Dispatch Office of the Fuel and Energy Complex, coal production in May decreased by 6% in annual terms (to 30.3 million tons), and exports - by 9% (up to 18.5 million tons)," said Kirill Rodionov.
Deputy General Director of the Institute for Natural Monopoly Problems Alexander Grigoriev draws attention to the fact that not only exporters, but also consumers will face problems in such a situation.
“The problem of where to put the coal will certainly appear in our country. But it is less sharp than the one facing Germany: where to get it. On the one hand, there is no particular excess of high-quality coal on the world market, on the other hand, no one will invest in expanding production capacities, knowing that demand for it is not guaranteed in the future. In Germany, they plan to reactivate over 10 GW of coal capacity, which will require an increase in imports by about 30 million tons of coal. If we add to this the falling 16-18 million tons of Russian coal, then next year the Germans will need to find somewhere around 46-48 million tons of high-quality hard coal,” Alexander Grigoriev estimated.
He also added that the Germans can only hope that economic growth in China and India will slow down, and this will allow Germany to receive the required volumes of coal at affordable prices.
Assessing the prospects for Russian coal, Alexey Kalachev notes that due to sanctions, and in addition to the EU, such largest buyers as Japan and South Korea also abandoned Russian coal - one can expect a general reduction in both exports and coal production. “At least until we manage to fully debug the channels of delivery and settlements for exports to other regions,” the Finam analyst clarifies.
Kirill Rodionov, an expert at the Institute for the Development of Technologies in the Fuel and Energy Complex, believes that the demand for coal will remain in the countries leading in the commissioning of generating capacities. And the Asia-Pacific Region (APR), including Australia and New Zealand, remains the key direction for the global coal market.
“The Asia-Pacific region accounted for 76% of the existing coal-fired generating capacities by the beginning of 2022,” said Kirill Rodionov. The share of the EU and the UK that have taken a strict course on "green energy" is, for comparison, 6%.
China has become the leader in terms of the pace of building up coal stations. “By the beginning of this year, China accounted for 96% of the stations in the construction phase and 89% of the stations in the pre-investment stage. Taking into account the fact that the share of China in the structure of these two indicators was 52% and 57%, respectively, the situation of 2015-2021, when the commissioning of coal capacities in the PRC exceeded their output around the world, may repeat,” said Kirill Rodionov.
Experts agree that the Asian region in the current situation will be the key for exports. “Asia will remain the locomotive of the global coal market. Africa will be the only region outside the Asia-Pacific region that will increase imports. However, Russian exporters will have to face competition here from other coal-producing countries, including the US, South Africa and Colombia,” predicts Kirill Rodionov.
Alexey Kalachev adds that in recent months China has already significantly increased the purchase of Russian coal and India has increased the volume of purchases many times over.
“There are great prospects for coal export here. India has long been interested in Russian coal. And in conditions when the prices for steam coal from Australia are storming unimaginable highs (above $400 per ton), the opportunity to get Russian coal on good terms and at a significant discount increases demand for it many times over,” Kalachev believes.
He also does not rule out that in the future the patterns of movement of coal export flows will change globally: Australian coal will go more actively to Europe, where there is a shortage and high prices, and less expensive Russian coal will become available in India and China.
At the same time, logistics towards Southeast Asia is still difficult to call ideal. “This is hampered by the insufficient capacity of the railways of the eastern range, the expansion of which will take time, as well as the development of the infrastructure of the Northern Sea Route. But it remains possible to redirect the delivery of their southern and Baltic ports to the region by sea. Although it is longer and more expensive than delivering coal to Europe, this is a real channel that is already being actively used,” Alexey Kalachev explained.
In 2021, the volume of Russian coal supplies to the Asia-Pacific region amounted to 52 million tons, which is comparable to supplies to European countries. It is likely that supply volumes will only grow in the future.
In Russia itself, according to Aleksey Kalachev, thermal coal consumption will remain stable, and its prices will be controlled by the state. “As for coking coal for metallurgy, prices for it are falling due to a reduction in demand for steel both within Russia and in the main world markets. This will also have a negative impact on coal production, at least until the Russian and Chinese industries accelerate growth,” said Kalachev, an analyst at Finam.
Kirill Rodionov, an expert at the Institute for the Development of Technologies in the Fuel and Energy Complex, assesses the prospects for the domestic market much more pessimistically. He promises attention to the fact that coal mining companies have been steadily reducing the volume of domestic supplies for many years.
“According to the CDU TEK, deliveries to the domestic market decreased by 11% in the period from 2010 to 2020, while exports increased by 74%. One of the reasons for the reduction was the contraction of demand in the electric power industry: over 10 years, supplies to coal-fired power plants have decreased by 23%. Deliveries of coal to coking plants over this period decreased by 10%, to households - by 13%. Deliveries to all other consumers increased by 44%, however, this did not make it possible to compensate for the general "subsidence" of the domestic market," Rodionov specified. And there are no prerequisites for a change in the trend, the expert believes - the coal-fired power industry has long begun to give way to renewable energy.