Coal becomes equilateral – Newspaper Kommersant No. 23 (7468) of 02/08/2023

Export prices for thermal coal in the ports of the Far East and the European part of the Russian Federation began to converge significantly. Spreads are shrinking due to the fact that coal prices in Asia fell much more than in the European market. The reduction in spreads encourages coal companies to increase supplies through European ports, which in January exceeded 2022 levels.

Spreads between thermal coal prices in the ports of the Far East and the European part of the Russian Federation are shrinking against the backdrop of falling coal prices in Asia, follows from Gazprombank’s CEP data, which Kommersant has read. Spreads have risen sharply since the outbreak of hostilities in Ukraine and widened further after the EU embargo on Russian coal went into effect in August 2022. If in September 2022, export prices for 6,000 kcal FOB Taman coal were $116 per ton, in January they rose to $121, and for FOB Baltic — from $107 to $118, respectively. At the same time, the cost of coal of the same quality on the basis of FOB Vostochny decreased in January to $159 from $174 per ton in September. The drop in prices for exports from the ports of the Far East can be explained by the general decline in prices in Asia this year: for example, the Australian benchmark has fallen by more than a third since the beginning of the year, to $249 per ton.

The reduction in the spread indicates a gradual normalization of the situation with the export of thermal coal from Russia. According to the CEP, coal exports through Russian seaports have been growing for the second month in a row, and loading on the railway is also recovering. In January 2023, the volume of exports through ports amounted to 15.5 million tons, which is 6.3% more than in January 2022, Interfax writes, citing its sources.

Coal companies exporting coal to Europe through the Northwest lost this sales market after the start of the coal embargo and were forced to redirect flows to other countries: Morocco, Turkey, Israel, as well as through the Suez Canal to India and China. Kommersant’s industry interlocutors estimate the profitability of such supplies at an average of 5%. According to the Central Bank’s review of the regional economy, coal supplies from Siberia to Asia through the ports of the South and North-West are already on the verge of profitability, but coal companies continue to export in order not to disrupt the terms of contracts and not lose new customers. According to Russian Railways, coal deliveries to the ports of the North-West increased in January by 32.9% compared to January last year.

Exports via the ports of the South are also on the rise as this is the most advantageous route for deliveries to India. According to a Kommersant source in the coal market, coal exports through the port of Taman grew steadily throughout 2022 and will increase in 2023. According to one of the latest industry ratings, in 2021, 22 million tons were handled through the bulk terminal in the port of Taman, in 2022 – more than 30 million tons. Kommersant’s interlocutor claims that deliveries through Taman to Asian countries are more profitable than through the ports of the Baltic and the Barents Sea, based on the level of total costs and the geography of shipments. At the same time, the advantage of the ports of the Far East in terms of profitability is often offset by the limited volume of exports through them. A significant part of the volumes of coal cannot be exported through the eastern route, especially in conditions when Russian Railways gives priority to more profitable cargo than coal when transporting through the Eastern range.

Independent industrial expert Maxim Khudalov says that rising prices in the Baltic direction signal some recovery in demand in Europe. According to him, sanctions prohibit direct coal supplies from the Russian Federation, but allow coal to be transported to third countries, which, in turn, can supply their own or repurchased coal to Europe. “So far, there is no need to talk about the profitability of coal supplies from Russia to the west. The margin of deliveries is unlikely to exceed 5%, but such deliveries are critically important, as they allow maintaining high capacity utilization and reduce unit fixed costs. In addition, it is also a way to retain sales markets, preventing traditional consumers from leaving for the products of alternative suppliers,” the expert says.

Evgeny Zainullin