At a crossroads: Russian coal mining counts losses

Ekaterina Maksimova

In pre-sanction 2021, Russian coal enterprises exported 223.4 million tons of coal.

It remains only to remember

The largest importers were China (53.6 million tons, including 44.3 million tons of thermal coal) and Europe (50.4 million tons, including 44.9 million tons of thermal coal). This was followed by Japan and South Korea (21.9 million tons and 21.4 million tons, respectively).

As Aleksey Faddeev, Deputy Head of the Department of Special Projects at the Institute for Natural Monopoly Problems (IPEM), recalled, Europe, including Ukraine and Turkey, accounted for about 36% of exports. And among European countries, the largest consumers were the Netherlands (15 million tons), Ukraine (14 million tons), Turkey (13 million tons), Poland (8 million tons). But since August 10, this entire list of partners has already been forgotten. It's time to learn the names of the provinces of China.

The West closes, the East... opens a little

Dmitry Koptev , head of the media center of the Institute for the Development of Technologies in the Fuel and Energy Complex, noted that this year, even before the embargo came into force, Russian coal supplies to the west decreased by 18.73%. Deliveries to the East for the first nine months of this year, on the contrary, increased (+5%).

In the spring, Bloomberg reported that China, against the backdrop of upcoming sanctions against Russia, significantly increased coal imports from Russia. But buyers from the Middle Kingdom demanded significant discounts from Russian exporters - minus 60% of the world price.

Due to deliveries at such a discount, Russian coal miners collectively lost more than a billion dollars a month.

“Netback (selling price minus the cost of delivery - ed. note) for the supply of thermal coal to China, depending on the port of departure, ranged from 2,347 rubles (Ust-Luga port) to 4,776 rubles (Nakhodka) per ton. At the same time, the FCF for the shipment of coal from Ust-Luga was generally negative,” Koptev noted.

“In the Asian market, coal has to be sold at a discount due to the huge increase in the supply of Russian coal. The Chinese market is huge in terms of volume, so even small changes in the balance of domestic consumption and production are reflected by significant changes in supplies to the country,” Alexey Faddeev explained.

At the same time, China, judging by the data of the General Administration of Customs of the People's Republic of China, began to reduce imports in the second half of the year. According to the data for September alone, deliveries decreased by 19%.

Dmitry Koptev explains the failure with logistical reasons. “After the introduction of anti-Russian sanctions, the demand for transportation through the Eastern Range has increased dramatically (what was being transported from Europe is now being transported from Asia). Under these conditions, such a low-margin cargo as coal could not compete with containers for a place on the railroad,” Dmitry Koptev explained the reason for the decline.

But closer to the cold weather, the discount for Russian coal began to decrease (about 35% from the previous 60%, because world prices fell, and Russian ones did not change). Export prices, depending on the geography of shipment, ranged from $110-120 to $160-170 per ton.

“For example, according to the Chinese Customs Service, in October deliveries in monetary terms amounted to $1.074 billion (in September - $1.049 billion). And this is despite a reduction in physical volume by 7.6%,” added the head of the media center of the Institute for the Development of Technologies in the Fuel and Energy Complex.

Stage - stabilization

Alexander Titov , a senior expert at the Institute of Energy and Finance, notes that the situation on the world coal market for Russian exporters has begun to stabilize. But long-term prospects will depend on several key factors: price (it will increase in winter), supply and demand (China and India are increasing production themselves and this is a risk) and, of course, the state of infrastructure in Russia.

And the state of the infrastructure - the limited capacity of the railways of the Eastern range - is a long-standing problem for coal miners (work is already underway to increase the carrying capacity to 180 million tons).

“The traditional reason is the insufficient capacity of the Eastern Corridor to completely switch to the eastern direction of supplies. The economy of deliveries from the ports of the European part of Russia is not very good. As of September, the FCF of all such shipments was negative. And for coking coal delivered to India, it was also negative when shipped from Nakhodka (India has its own large reserves of coking coal, so its prices are relatively low there),” Koptev explained.

Are the mines closed?

In 2021, Russian coal companies produced 439.5 million tons of coal (more than 52 million tons were wasted during enrichment). 386.8 million tons were brought to the market. But by the end of 2022, there will definitely be a decline.

For 10 months, according to Rosstat, coal production decreased by 0.6%. “At the same time, the decline in Kuzbass is much larger: -9% over 11 months. Thus, production in Kuzbass is being replaced by more eastern regions,” Faddeev specified.

It should be noted that the Kuznetsk Basin, where production has already fallen by 9%, is the largest supplier of coal: Kuzbass produces 55%.

According to the forecast of the Ministry of Energy, coal miners, who have lost more than 30% of the market (European and Ukrainian), will not be able to return to the pre-sanction level of 2021 in the next few years.

According to Koptev, according to the inertial scenario of the Ministry of Energy, by 2030 the total level of production will be reduced to 386 million tons per year (-53 million tons), with a peak in 2023.

“There is still an optimistic scenario. And it provides for a decrease in exports in 2023-2025 with a further positive growth. At the same time, production will also decrease in the next three years, and then it will begin to grow,” the expert explained.

Both scenarios imply a reduction in domestic consumption as well, primarily on the part of the power industry and metallurgists. “Given the negative dynamics that the national economy is now showing, further events will be closer to the inertial than to the optimistic scenario,” Dmitry Koptev summed up.

In absolute terms, Russian enterprises in 2023 will reduce export volumes by 47 million tons in an optimistic scenario. Or they will reduce the share of exports by 70 million tons, according to the inertial scenario of the Ministry of Energy. Whether by the end of 2023 Russia will leave the top three largest global coal exporters, we will find out in a year.