Lower price, currency flexibility drive more Russian thermal coal to India

With India leveraging discounted Russian coal and banks adapting to facilitate trade in currencies other than the US dollar, data shows that the influx of Russian material -- which has been increasing significantly -- has eaten into the Indian import market of high-CV US, South African and Australian coal and experts believe that the trend is likely to continue.

According to data from S&P Global Commodities at Sea, Russia has far surpassed Australia and the US to become the third-largest supplier of thermal coal to India in July, following Indonesia and South Africa. The data shows that 1.9 million mt of Russian thermal coal was discharged at Indian ports in July, which is nearly three times the amount supplied in July 2021. Thermal coal imports from South Africa fell 9% to 2 million mt, while supplies from Australia and the US dropped 29% to 1 million mt and 27% to 800,000 mt, respectively, over the same period.

"Initially when the Russians began selling heavily discounted coal in India, the banks were not prepared to trade in rubles or Chinese yuan, or any other currency beyond the US dollar," a source based in Europe told S&P Global Commodity Insights, adding that "in the last four weeks the [Indian] banks have adapted, and now the increase in Russian coal is pushing out US, South African, Australian, and some higher CV Indonesian coal."

The development takes place at a time when changes in trade flows in the aftermath of the Russia-Ukraine conflict, which started on Feb. 24, raised global coal prices. As per official figures, India's total coal import costs (including coking coal) grew 166.76% on the year to $10.1 billion in April-May despite import volumes being 5.24% lower at 39.93 million mt. India's financial year starts from April.

"Tonnages coming in from Russia will definitely impact tonnages coming from Australia and Indonesia," an Indian end-user said. Another source told S&P Global that "Indian cement users are preferring Russian coal and blending it with domestic coal to an extent that it is competing with Venezuelan petcoke."

Shifting sources

According to data from S&P Global Commodities at Sea, India imported 5.3 million mt thermal coal from Russia in February-July, which is 104% higher than volumes in February-July 2021.

South Africa remained the second-largest thermal coal supplier to India in February-July, although supply volumes fell to 11.5 million mt from 14.3 million mt during the same period in 2021.

Shifting trade dynamics seemed to have impacted thermal coal supplies from Australia the most, with imports in February-July falling to 5.6 million mt from 10.9 million mt in the same period in 2021.

Indonesia, which mainly supplies low and mid-CV thermal coal, has not only retained its position as the top thermal coal supplier to India but imports have in fact risen to 68.2 million mt in February-July from 38.5 million mt over the same period in the previous year.

Thermal coal imports by India from the US fell 52% on the year to 3.4 million mt, helping Russia become the fourth largest supplier in February-July.

"The fall in US exports to India though has improved the ability of US exports to resupply Europe, as it looks for replacement tonnages for Russian material ahead of the August ban and as coal is an integral balancing fuel during this time of volatility," according to Platts Analytics.

Total thermal coal imports by India increased to 96.8 million mt in this timeline from 75 million mt a year ago, as per data from S&P Global Commodities at Sea.

Impact of prices

Significant drops in thermal coal imports from Australia and the US coincided with surging prices. According to S&P Global data, the price of Australian 5,500 kcal/kg NAR low-ash coal increased to $210.35/mt July 29 from $163.4/mt FOB Feb. 24. The FOB price of Baltimore 6,900 kcal/kg NAR with 3% sulfur US coal increased 102% from $140.2/mt Feb. 24 to $283/mt July 29.

The rise in Russian coal supplies is also a result of the price of higher-grade Russian 6,300 kcal/kg GAR coal falling to $158/mt FOB from $200/mt between Feb. 25 and July 29, amid spikes in coal prices of other origins.

South African 5,500 kcal/kg NAR coal price rose from $231.9/mt FOB since the beginning of the war to $238.35/mt July 29. The rise in the price of Indonesian coal was mild compared to hikes in Australian and US coal rates, with Indonesian 4,200 kcal/kg GAR price rising from $79.05/mt FOB Feb. 24 to $80.25/mt July 29.