Russian coal becomes cheaper in ports

Russian thermal coal in the most marginal eastern direction is getting cheaper on the back of a warm winter and low demand in China. The range of prices depending on the calorific value is $104-135 per ton. Coal companies expect further price cuts and reduce production of energy coal grades. Coal production for metallurgy, on the contrary, is increasing against the backdrop of rising prices.

Prices for Russian thermal coal in the ports of the Far East have fallen by 17% since the beginning of January, according to the Center for Economic Forecasting of Gazprombank (CEP GPB). Russian players expect the downward trend to continue until the end of the second quarter of 2023, traditionally characterized by lower consumption of thermal coal, according to the CEP. Thus, thermal coal 6000 kcal costs $135 per ton FOB Far East, 5500 kcal – $124, 5000 kcal – $104. A year ago, the price of 6,000 and 5,500 kcal coals fluctuated at $193 and $140, respectively.

Analysts cite several reasons for the decline in prices. In addition to a warm winter, the growth in demand for coal in China is not stimulated by the outpacing growth in production and its reserves. In addition, gas prices in Europe in February 2023 dropped to $550 per 1,000 cubic meters amid an abnormally warm winter and maximum gas reserves in underground storage facilities, which is three times lower than in autumn 2022. Weather conditions are a key driver of gas price volatility in the 2022/23 heating season.

The decline in thermal coal prices led to a further reduction in price spreads between deliveries in the eastern and western directions – up to $25 per tonne of 6,000 kcal coal. In January of this year, the spread was $41. “With the European market closed, coal supplied through western and southern ports is intended mainly for the same export destinations as products transshipped through the ports of the Far East, for the markets of China and India,” comments the CEP.

According to Rosstat, in January 2023, coal production fell by 1.8% compared to January last year, to 34.9 million tons. Compared to December, the decline is 19.3%. Kuzbass, the main coal-producing region, reduced coal production in annual terms by 8%, to 17.5 million tons of coal, the Ministry of Coal Industry of Kuzbass cites January data. The production of coals of energy grades decreased by 13%, to 11.9 million tons (13.7 million tons), and coking coal increased by almost 6%, to 5.6 million tons (in January 2022 – 5.3 million tons). The production of coking grades is positively affected by the growth of world quotations. Since December 2022, premium low volatility coal has risen in price from $250 to $390 FOB Australia, according to Metals & Mining Intelligence.

Now the commodity market is showing a downward trend amid increasing risks of a global recession, comments Sergey Grishunin from the NRA. In his opinion, in this regard, the downward trend in prices in the second quarter is clearly visible, but nevertheless, expectations of a slowdown in the rate of decline remain against the background of a decrease in the marginality of coal supplies to China from world producers, primarily from the USA and Canada. “Expectations agree that prices in China will remain above $120 per ton by the end of the quarter,” the analyst believes.

Evgeny Zainullin