Australia-based coal miner Coronado Global Resources Inc. expects disrupted Russian supply to support metallurgical coal prices in 2022, after receiving more orders from European steel mills amid Russia's war in Ukraine.

The European Commission recently approved an import ban on Russian coal as part of sweeping sanctions against Russia due to its invasion of Ukraine. The United States, the United Kingdom and Japan have pledged to suspend Russian coal imports.

Russia owns about 30% of global pulverized coal injection operations and the country accounts for about 15% of global met coal supply, Coronado CFO Gerhard Ziems told investors during an April 27 earnings call.

Before the EU's coal embargo comes into effect in August, European consumers have turned to non-Russian markets, pushing met coal prices in Australia to surge by more than $250 per tonne to record levels of $670 per tonne in mid-March, Ziems noted. Met coal is mainly used for steelmaking.

"We are experiencing heightened requests for met coal from existing and new European customers," Ziems said. Europe usually imports about 10% of met coal from Russia and 30% of their consumption of PCI comes out of Russia, Ziems added.

Coronado expects met coal prices to decline from high levels in March, but continue to benefit from restrained supply from Russia. The EU's coal ban will put more pressure on global met coal supply after August, Ziems said.

Trade constraints with respect to China, and high energy costs also provide support and a floor to met coal prices, Ziems said.

Benefiting from the increase in met coal prices, the Australian company's revenue grew by 22.3% to $947.1 million in the first quarter of 2022, compared to the prior quarter. Coronado noted that about 95% of its revenue came from met coal sales.

Overall met coal demand is projected to remain positive in 2022, partly offset by improving output from Australia and Mongolia, the company said.

Coronado also flagged that a COVID-19 resurgence in China has been denting demand.

"China is very quiet at the moment. And you can see that's also affected in a relatively low [cost-and-freight cost] in China for us," Ziems said on the earnings call.

COVID-19 lockdowns in China have disrupted logistics along the steel value chain, including the supply to end-users and the supply of raw materials to mills, the company said. That is lowering demand for domestic steel and met coal in the short term.

"Europe is really supporting the current cost," Ziems said. "You will see a lot of diversion away from China right now into the European market from all met coal producers, including us.

In the first quarter, Coronado produced 6.7 million tonnes of run-of-mine, or ROM, coal, increasing 5% from the previous quarter while decreasing 1.9% from the prior-year quarter. ROM production reached 3.5 Mt at the company's Curragh operations in Australia, while its U.S. operations contributed 3.2 Mt ROM. Combined salable production increased by 3.5% to 4.2 Mt from the December quarter.

However, the company's first-quarter mining costs rose to $76.3 per tonne from the average of $65.7 per tonne in 2021 due to inflationary pressures, the start of a seventh fleet at Curragh's main mine and maintenance at the Buchanan mine in the U.S. Coronado expects full-year costs to fall within a market guidance range of $69.0 per tonne to $71.0 per tonne as production levels are weighted to the second half.

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