Demand from key buyers, lower tariffs push up Russian thermal coal exports

Russian thermal coal exports increased in the May-July period from the previous three-month period (February-April) driven by an increase in imports from major consumers in the Asia-Pacific and the Mediterranean regions coupled with an export tariff reduction by the Russian government at the start of May.

In May-July, Russia exported 37.3 million mt thermal coal compared with 29.4 million mt in the February-April period, S&P Global Commodities at Sea data showed. Russian thermal coal exports during the May-July period were higher than the 36.7 million mt it exported in the corresponding period of 2023, according to the CAS data.

Major Asian consumers such as China, Japan-South Korea-Taiwan and India have experienced an uptick in imports during much of the May-July period owing to the heatwave conditions, which led to a rise in cooling demand, and a decrease in the supply of high calorific value coal from alternative regions, market participants said.

"I remember reading about the removal of export tariffs on Russian thermal coal and I would think this to be a primary factor because it is not just a shift from Colombia [with regards to South Korea], we (also) saw India shifting their coal imports to Russia from Australia," a Singapore-based shipping industry source said.

The Russian government temporarily removed duties on the export of thermal coal and anthracite from May 1 to Aug. 31.

Power requirement drives demand

Russian thermal coal exports to China increased 1.2% year on year in the February-April period and 8.8% year on year in the May-July period, despite Beijing reinstating a 6% levy on thermal coal imports from countries without a Free Trade Agreement, including Russia.

China's demand for high-CV thermal coal grew despite a downturn in industrial activities and lower coal-based power demand as rainfall in certain parts of the country increased hydropower generation.

In 2024, China has imported 222 million mt of thermal coal, already more than 217.7 million mt imported in 2022 and seems to be on course to match the 329.5 million mt of thermal coal it imported in 2023, CAS data showed.

Japan, South Korea and Taiwan have been among the countries that put restrictions on Russian imports. However, the heatwave conditions in the JKT region this year resulted in buyers from the region procuring high-CV material from Russia, resulting in a 21.3% increase in thermal coal imports in the May-July period.

Supply disruption in Colombia, which has been among the key suppliers of thermal coal to the region amid restricted Russian imports, along with higher freight rates on the Atlantic to Asia-Pacific region also resulted in an uptick in demand for the Russian material.

Demand for Russian thermal coal from India held steady on the year in May-July but was lower by 47.8% on the year in February-April due to increased domestic production, volatile freight rates and availability of cheaper alternatives.

In the Mediterranean region, Egypt's Russian thermal coal imports rose to 400,000 mt in May-July, up 300,000 mt from February-April and Morocco's import of Russian material increased to 500,000 mt in May-July from 200,000 mt in the prior three months, CAS data showed.

Turkey imported 5 million mt of Russian thermal coal in May-July, up from 4.6 million mt in the previous three-month period but down on the year from 5.6 million mt.

"Buyers in the Mediterranean region tend to switch between cheaper alternatives depending on feasibility but Russian material is still cheaper and I don't believe it is possible to sell non-Russian cargoes to Turkey," a Turkey-based trader said.

Operational, logistical issues push price higher

Prices of Platts-assessed high-CV Russian origin thermal coal have witnessed a significant decline on the year in 2024. Platts-assessed FOB Russia Baltic 6,000 kcal/kg NAR coal price averaged $69.20/mt in May-July, sharply down from $97.40/mt in the corresponding period of 2023, S&P Global data showed.

FOB Russia Pacific 6,000 kcal/kg NAR coal average price also declined $12/mt on the year to $92.80/mt in the May-July period and FOB Black Sea 6,000 kcal/kg NAR coal, whose assessment started last year in August, averaged $70.75/mt in May-July, down from $74.40/mt in February-April period.

While the lower prices of high-CV coal from Russia have been attracting interest from key buyers in Asia-Pacific and the Mediterranean region, the logistical and operational challenges have led to an increase in Russian thermal coal prices since the end of July due to supply tightness.

"Russian suppliers have been dealing with logistical constraints, soaring production costs, and the weight of international sanctions since the beginning of the year. This has led to very few offers in the market especially for the price-sensitive Indian buyers" an India-based trader said.

According to a Singapore-based trader, over the past few months, there has been a sharp decline in the supply of Russian coal to sea terminals in the Northwest and Far Eastern ports due to limitations with Russian railways and high mine-to-port transportation costs." Russian thermal coal supplies from the Far East were heard to have limited availability until September-October.