EU's fifth sanction package proposes banning of Russian coal exports

The European Union has proposed a fifth package of sanctions on Russia over its invasion of Ukraine, including imposing an import ban on Russian coal, worth Eur4 billion ($4.4 billion)/year, the European Commission announced April 5.

"This will cut another important revenue source for Russia," the commission said.

The commission is also considering a ban on Russian vessels and Russian-operated vessels from accessing EU ports. "Certain exemptions will cover essentials, such as agricultural and food products, humanitarian aid as well as energy," it said.

When asked for details on which coal would be banned, the EC told S&P Global Commodity Insights that the details of the package would be not disclosed yet as it would first need to be approved by EU member states.

European coal association Euracoal had not responded to S&P Global's request for comment on the sanctions by the time of publication.

According to the US Energy Information Administration's latest report, Russia exported more than half of the coal the country produced in 2021 at 262 million short tons, up 7% year on year. One-third of Russia's coal exports were sent to OECD Europe and Germany, the Netherlands, Turkey and Poland received a combined 24% of all Russia's coal exports in 2021.

Thermal coal accounted for 90% of Russia's coal exports, according to the EIA.

Around 30% of European metallurgical coal imports and around 70% of thermal coal imports come from Russia, according to Wood Mackenzie.

According to the International Energy Agency's Coal 2021 report released before the invasion, Russia was expected to increase total coal exports to 232 million mt in 2024, up from 212 million mt in 2020.

Of this, met coal exports are expected to total 45 million mt in 2024, up from 40 million mt in 2020.

Thermal coal

In the latest International thermal coal market forecast release April 1, S&P Global analysts revised the forecast for total Russia thermal exports in 2022 down to 152.3 million mt from the previous 166 million mt, saying that European sanctions were expected to result in exports to the Atlantic falling by over 30 million mt to 49.8 million mt.

According to S&P Global, Germany is the largest seaborne thermal coal importer within the EU-15 and one of the largest single destinations for Russia thermal coal exports.

"In Germany, which imported around 50% of its coal from Russia prior to the invasion, the government expects to cut Russian supply down to 25% "in the next weeks" and then to zero by Autumn, but a tight seaborne market may make it difficult to replace all lost Russian tonnes, while in Italy, availability issues have continued to limit output," the analysts wrote.

Platts assessed the CIF ARA 6,000 kcal/kg NAR 15-60 day daily price at $310/mt April 5, up $37/mt day on day and up 129.5% since the start of 2022, according to S&P Global data.

The ban on Russian thermal coal could become an issue for the European DES ARA 6,000 kcal/kg NAR thermal coal market, as DES ARA coal should meet online coal trading platform globalCOAL's Standard Coal Trading Agreement (SCoTA) specification.

According to these specifications, DES ARA thermal coal should have a calorific value of minimum 5,850 kcal/kg NAR for coal from Australia, Colombia, Poland, Russia, South Africa and the US, although the different origins are allowed to have specific differences in ash, moisture, volatile matter and sulfur content.

GlobalCOAL had not responded to S&P Global's request for comment on the sanctions or the impact on thermal coal trading by the time of publication.

Market sources have said that, with coal specifications dwindling, most origins can no longer guarantee minimum 5,850 kcal/kg NAR coal, meaning that the lack of Russian coal could impact higher spec coal availability.

"As replacement supplies are sought for high quality Russian material, it may necessitate imports of lower CV quality tonnes, increasing tonnage requirements," the S&P Global analysts said in the report.