The price of Russian coal supplies to China increased by more than 14%

Prices for Russian export coal increased by more than 14% in September on the eve of the October holidays in China and against the backdrop of restrictions on domestic production there, as well as amid strong demand from India. According to analysts at the Gazprombank Center for Research and Development, the price of thermal coal may receive additional support in preparation for the winter period, while metallurgical coal, on the contrary, will become cheaper if the risks of introducing restrictions on steel production in China are realized. According to experts, there are no prerequisites for a sustainable rise in prices yet, but they may arise under the influence of the actions of the US Federal Reserve in the first half of 2024.

The price of Russian coal jumped on the eve of the holidays in China, according to a report by the Price Index Center (PIC) of Gazprombank. China celebrates the Founding Day of the People’s Republic of China on October 1, followed by a week-long holiday.

In the penultimate week of September, the report notes, prices for different grades and types of coal increased in the range of 7.4–12.7%.

“The level of proposals under discussion for grade K metallurgical coal in China was announced at $206 per ton CFR China,” the report says. “Grade Z was offered at $200 per ton CFR China. The price level for the GZh grade in the Chinese market was in the range of $185–190 per ton CFR China, however, Russian exporters are showing interest in offers of at least $200 per ton FOB ports of the Far East, taking into account export alternatives in other markets.”

PCI coals, the document said, were quoted in the range of $170–173 per ton CFR China. The cost of thermal coal with a calorific value of 5500 NAR rose to $108 per ton CFR China.

In the first half of the year, CCI indices for thermal coal in the ports of the Far East decreased by 40.1%, for coking coal of the GZh grade – by 48.7%, under pressure from rising imports and domestic production in China, a decline in global steel production and muted growth in the residential real estate sector in China. Kommersant previously reported that coal exports from Russia slowed down in the summer due to the loss of market advantages due to reduction in discounts: buyers began to look for cheaper alternatives to Russian coal and found them, in particular, in Australia. It was discounts that supported exports in 2022 (see “Kommersant” dated August 8).

“In September, export prices for Russian coal showed a long-awaited increase,” notes Evgeniy Grachev, director (coal markets) of the Gazprombank CCI. “CCI indices for thermal and coking coals grew over the month by an average of 14.4%.”

The growth was supported by inventory replenishment in China ahead of the long holidays, domestic production curbs in China due to inspections and robust demand from India, he said. “After the end of the expected dormant weekend period, thermal coal may receive support ahead of preparations for the winter period,” the expert says. “Metallurgical coal, on the contrary, is at risk of restrictions on steel production in China in the fourth quarter of this year.”

There is indeed a rise in prices, confirms independent industrial expert Maxim Shaposhnikov: the price of rolled steel has risen, and this also correlates with energy markets. Coal is now winning back the long-term strengthening of oil.

However, oil “has entered into stagnation, which will affect the coal market in a month and a half to two months, and there will probably be more negative news – both on the growth dynamics of the Chinese economy and on the construction situation,” the expert notes, also not expected this season floods in Australia. Therefore, Mr. Shaposhnikov believes, now for coal we are talking about a surge in prices before another fall. Full growth, in his opinion, can be expected if the US Federal Reserve begins a cycle of lowering the base rate, but “it is already obvious that this will be postponed to the first half of next year.”

Natalya Skorlygina