Russian Coal Market
The war between Russia and Ukraine at the end of February this year has increased the uncertainty in the world energy market. As China is the largest Russian coal exporter in Asia-Pacific, Chinese coal buyers are also one of the world’s largest coal importers. After Japan and South Korea followed the European and American sanctions against Russia, Chinese coal buyers increased their imports of Russian coal.
Russian coal also provides incremental volumes for Chinese coal importers. However, price, railroad capacity, military and political factors, Russian coal imports, and settlement risk constrained Russian coal imports. Let’s take a look at the Russian coal market.
Approximately 68% of Russia’s coal is stored in the Kuznetsk and Kansk-Achinsk coal fields, the former producing mainly coking coal and the latter producing primarily steam coal.
Geographically, there are two main directions of railroads for coal importers to import coal from the Russian territory, with more distance advantage to the west: one is the direction from Kuznetsk mines to the ports in the Far East, with transport routes consisting mainly of the Trans-Siberian Great Railway (Trans-Siberia) and the Baikal-Amur Railway.
with an average distance in this direction of The other approach is from the Kuznetsk mine to the Black Sea ports, Baltic ports and Northwest ports, and the transport route mainly consists of the Trans-Siberian Great Railway and the October Railway and the northward branch, with an average distance of 4,300 km in the westward direction to the three ports, carrying coal to the European region.
The average length to Europe is nearly 1000 km less than that to the Far East ports (Asia-Pacific region), which determines the high transportation cost and restricts the export of Russian coal to the Asia-Pacific region to a certain extent.
According to Russian Railways, in 2021, Russian coal rail traffic will be 182 million tons, accounting for 52% of the total rail traffic, making it the most oversized cargo transported by rail. Of this, 94.6 million tons of coal are shipped to Far Eastern ports; In comparison, the volume of freight shipped to Far Eastern ports is 114 million tons, accounting for 82.7% of overall freight traffic, and Far Eastern port capacity has reached a bottleneck (about 95 million tons/year).
In January-April 2022, the total volume of rail cargo transported in Russia was 410 million tons, down 1.1% compared to the same period of the previous year; the importance of coal transported was 120 million tons, down 2.3% compared to the same period of the last year. Among them, the volume of coal transported in April was 29.3 million tons, down 6.1% compared to the same period of the previous year. In April 2022, Russia exported 3.4 million tons of coal to China via the railroad network, up 21.4% compared to 2.8 million tons in March.
Container transport routes of Russian Rail Logistics
From the perspective of Russian coal export distribution, after Japan and South Korea adopted sanctions against Russia, Russia has listed these two countries as “unfriendly countries and regions”; therefore, in the Asia-Pacific region, Chinese and Indian coal importers are the first and second largest coal buyers in Russia, and the coal that should flow to Japan and South Korea is likely to gradually The coal that should sail to Japan, and South Korea may flow progressively to China and India. India has the same energy resource endowment as China, and coal is also its most important energy source.
Therefore, coal import is also one of its important sources of energy. In May this year, the Indian government allowed power companies to increase the proportion of imported coal to 30% to cope with the power shortage caused by the summer heat. For India, its imports are mainly by sea, and the main coal ports are located on its east coast, which gives our country a comparative advantage in terms of freight costs compared to India.
Figure 8: Distribution of Russian coal exports (2020)
China's coal imports in 2022
In the context of the worldwide energy crisis, although China’s coal market, in general, has minimized the disturbance under the regulation of policies, the performance of China’s coal import market is not optimistic, and the transactions are much colder in the face of the high coal prices in overseas markets. From January to April 2022, Chinese coal importers imported 75.362 million tons of coal, a decrease of 16.4% compared with the same period last year;
51.813 million tons of coal were imported from January to March, a reduction of 24.3% compared with the same period; 23.549 million tons of coal were imported in April, a decrease of 8.4% compared with the same period last year and an increase of 43.4% compared with the same period the previous year.
Specifically, from January to April, Chinese coal buyers imported 42.367 million tons of coal from Indonesia, down 25.3% from last year, and 13.535 million tons from Russia, down 7.5% from last year. As of April, Chinese coal importers imported 15.951 million tons of Indonesian coal, up 59.1% YoY; coal buyers imported 3.896 million tons of Russian coal, up 24.8% YoY. Overall, coal imports in April have improved to some extent.
As mentioned above, 80% of Chinese coal importers‘ imports of Russian coal are transported by rail to its Far Eastern ports and then by sea to China’s southeast coastal ports. Therefore, even in the face of most of the time, the price of Chinese coking coal is greater than that of Russian coal, and the transportation cost of using such a transportation method is very high. It will be limited by capacity, an essential factor limiting China’s imports of Russian coal.
For the later coal import market, as the world energy supply-demand imbalance is still not fundamentally solved, it can be expected that coal prices will not fall in a short period, and the overall price inversion phenomenon will continue to exist. The performance of coal imports will continue to be sluggish.