Russian coal shipments to China surge as ban on Australian coal continues

With China turning to alternative sources amid an unofficial ban on Australian coal since October 2020, Russia has taken advantage of the situation with coal exports that are expected to further increase amid industrial expansion, while Mongolian supply has recently slowed due to a worsening COVID-19 situation.

Data from China's General Administration of Customs released earlier this month showed the country's coal imports for the January to February period dropped 39.5% on a yearly basis, to a multiple-year low of 41.13 million tonnes. However, despite the decline, market watchers have observed an increase in Russia's coal shipments to China in recent months as Moscow is reportedly trying to ramp up its coal exports to Asian countries.

Refinitiv's lead global coal market research analyst, Toby Hassall, said it is "unsurprising" to see a substantial lift in exports of Russian coal to China in recent months as Russia's cost-competitive supply is well placed to fill some of the gap caused by the ongoing absence of low-cost Australian products. Hassall noted that China imported 5.6 Mt of coal from Russia in the first two months of this year, a jump of more than 140% from 2.3 Mt in the same period of 2020.

Hassall said Russia is looking to take full advantage of this situation by increasing its coal exports to China in the coming years with a strategic expansion of its coal industry, which is sponsored at the highest level of the Russian government through several key projects, in addition to upgrading and expanding its coal rail network.

Russian President Vladimir Putin recently met industry executives and government officials to plan ways to increase Russian coal exports to Asian countries by 30% in the next three years, The Australian reported March 7, citing research and consultancy group Wood Mackenzie.

Customs gave Chinese utilities and steel mills verbal notice in October 2020 to stop buying coal imports from Australia amid diplomatic tensions between the two countries. As the ban heads into its sixth month, there have been no signs on whether China will lift or maintain it. Bloomberg News reported in February that China was considering allowing some Australian coal stranded at its ports to unload but as a humanitarian move to relieve seafarers stuck on the cargo ships since the ban came into force.

Data compiled by S&P Global Platts showed that Russia's coal exports to China recorded a large increase in December 2020 on a monthly and yearly basis, when Australian supplies were not able to enter China. That was despite issues for Russian shipments during the winter season, including coal haulage, railing and transportation, according to Platts' industry sources.

Customs data showed Russia's coking coal shipments to China jumped to 1.18 Mt in December 2020, 67 times higher year over year and an increase of 123% on a monthly basis. Meanwhile, China's bituminous steam coal imports from Russia more than doubled to 3.16 Mt in December 2020 from November 2020, Platts data showed.

A March 17 report from the Australian Parliament warned that China, its biggest trading partner, "may well have other options" in three to five years' time for Australia's resources such as iron ore and coal while discussing the need for diversification for the country's trade and investment profile.

"China needs our resources — yes, it needs some of our resources now like iron ore; there's no alternative right at the moment. But for a lot of the other products we sell to China there are alternatives, and China is going to look to those other countries," the report said, citing think tank Cognoscenti Group.

Chinese buyers' import demand for Russian coal will likely remain strong in the upcoming months with tight domestic supply as shipments from Mongolia, another major coal supplier to China, have greatly slowed amid stricter coronavirus containment measures, according to Zhang Min, a coal analyst with Chinese commodity consultancy Zhuochuang.

Zhang said in an interview that the volume of coal imports from Mongolia has recently dropped sharply as the pandemic situation in Mongolia is now at its worst since the start of the outbreak, with the number of vehicles allowed to enter China reduced to 20 on March 17 from 533 on March 15.

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