A better future for Russian coal?

The period of record growth for thermal coal has apparently come to an end, with Newcastle coal futures, the benchmark for Asia’s coal-consuming region, plummeting 59.2% YTD, from $393 to $160 per tonne, the lowest level since January 2022 (see Fig. 1). A similar trend is observed for virtually all coal sold by the world’s leading suppliers. This also applies to Russian coal, but with a proviso.

The decline in prices has not been as pronounced with Russian exports: from 21 April to 12 May, a tonne of coal at the Vostochny port on the Russian Pacific coast dropped 5% in price, from $130.2 to $124.28, while that at South Africa’s Richards Bay tumbled by as much as 19%, from $132.2 to $107.[1] This, according to Argus, makes Russian supplies less attractive, with buyers switching to cheaper Colombian and South African coal, while analysts expect a fall in Russian exports.

Yet, by the looks of it, Russian coal miners are not going to be deterred by setbacks observed early this year (see Fig. 2). As suggested by the statistics, coal traffic by rail to Russian ports rose 12.7% to 47.6 million tonnes in Q1 2023.[2] And so did the tonnage handled by these ports. According to the Association of Commercial Sea Ports, in the first four months of 2023 dry-bulk flows of coal through Russian ports increased 18.3% YoY to 70 million tonnes.[3]

Thermal coal producers, however, have been unable to entirely shrug off the effects of the price slump – even amid growing exports. Indeed, while in 2022 profitable companies made up 67.3% of all coal players,[4] in January 2023 their share shrank to 58.4%,[5] though rising somewhat to 61.4% in January-February.[6] In view of the above, local producers can hope for a better future if the discount on Russian coal goes down, or global coal prices resume growth (at the current level of exports) amid rising demand from Asia, prompted by the heatwave, or the Russian ruble loses steam. Should no major developments of this kind occur, the outlook for the Russian coal industry could be in question.