China will return import duties on all types of coal in 2024

Russian companies exporting coal to China expect the return of import duties into the country, which were abolished in 2022. Duties range from 3–6% depending on the type of coal; their volume for Russian supplies could amount to $0.4 billion per year. At the same time, Russian companies are already facing pressure from Chinese consumers who want to shift the duty to coal suppliers. Some Russian manufacturers have already taken Chinese duties into account in their 2024 budget.

Russian coal companies expect China to return import duties on all types of coal in 2024. We are talking about a duty of 3% on coking coal and anthracite and 6% on thermal coal, industry interlocutors told Kommersant. On December 21, the Customs Tariff Commission of the State Council of China announced adjustments to import and export tariff rates for 1,010 products. Coal is not among them, but the zero tariff on coal imports was in effect from May 1, 2022 and was last extended in March 2023 until December 31. The abolition of zero tariffs, as interlocutors in the coal industry expect, will affect Russia, Mongolia, Canada and the United States. Australia and ASEAN countries will maintain zero tariffs through free trade agreements with China.

Following the introduction of the European embargo on Russian coal, China is a key market for Russian companies. From January to November 2023, China increased its total coal imports by 63%, to 430 million tons. As follows from data from the National Bureau of Statistics of the People’s Republic of China, coal production in the country over the same period increased by 2.9% and reached 4.24 billion tons.

The Ministry of Energy of the Russian Federation told Kommersant that the introduction of import duties by China will not affect Russian exports. “Import duties in China are levied on the buyer, not the seller. That is, Russian producers of coking coal will only pay export duty,” the ministry said. Elgaugol did not respond to Kommersant’s request, and SUEK declined to comment.

However, according to Kommersant’s sources, Chinese buyers insist that Russian suppliers bear the costs of returning the duty by reducing the price. One of Kommersant’s interlocutors at a coal company says that Russian producers have little opportunity to redirect flows: India is reducing its dependence on imports, and China has accumulated large coal reserves. Sibanthracite, the largest producer and exporter of anthracite, told Kommersant that it had adopted the company’s budget for 2024, taking into account the return of import duties in China.

According to Chinese customs data, in January-November 2023, imports of Russian anthracite amounted to 16 million tons worth $2.8 billion, coking coal – 23.7 million tons worth $4 billion, thermal coal – 50.3 million tons worth $6.2 billion. Thus, based on this year’s prices, the import duty could cost Russian coal companies $400 million. In addition to the import duty, Russian coal companies pay an exchange rate export duty – already to the Russian budget. The duty is 4–7% depending on the ruble exchange rate.

According to Kommersant’s sources in the industry, the positions of coking coal producers are better protected than those of energy producers. Interlocutors say that some companies mining thermal coal are already forced to reduce production.

Industry publication Steelorbis writes that the duty refund will not have a significant impact on coking coal suppliers from Russia and Mongolia due to price competitiveness. Russian coking coal exporters are quite efficient, confirms Boris Krasnozhenov from Alfa Bank. The cost price on a FOB basis in the ports of the Far East can be estimated at $70–100 per ton, which provides quite an attractive margin for coking coal exporters, the analyst notes. “The introduction of a duty will most likely lead to a slight increase in prices for end consumers, but will not significantly change the picture on the coking coal market,” says the expert.

Evgeniy Zainullin