The profit of Russian coal companies in 2022 increased less than their revenue

Russian coal companies increased their revenue by almost a third in 2022 due to rising world prices, but their profit increased only by 9%, according to the calculations of the Ministry of Energy. Costs rose due to the loss of premium markets as a result of sanctions, higher freight rates and poorer access to railway infrastructure in Russia for exports to the east. Experts believe that this year the situation for coal exporters will become even more difficult due to falling prices.

The profit of Russian coal companies in 2022 increased less than their revenue, follows from the report of the Ministry of Energy on the implementation of the coal industry development program. According to the data of the CDU of the Fuel and Energy Complex, cited by the Ministry of Energy, last year coal companies increased the shipment of products by 32.8%, to 2.3 trillion rubles. The reason for the rapid growth was coal prices, which rose against the backdrop of sanctions and risks of disruption in the rhythm of coal export supplies from Russia. At the same time, the profit of coal companies grew by only 9%, to 784 billion rubles, the Ministry of Energy writes.

According to the report, the loss of premium sales markets (EU, Japan, South Korea), the impossibility and rise in the cost of import supplies of equipment and components, the increase in production and transportation costs, the need for early repayment of external borrowings affected the low growth rates of profits. “This creates risks for the implementation of companies’ investment plans for future periods,” the report says.

Russia in 2022 has lost its traditional sales markets. Exports to Europe and Ukraine in 2021 totaled 64 million tons, and only to Poland – 7.8 million tons. Russia was forced to redistribute these volumes to the Asia-Pacific region, where 140 million tons of coal were delivered in 2022.

If not for the sanctions, the proceeds from the sale of coal could have been more. The report of the Ministry of Energy states that coal companies are faced with an embargo on coal supplies to the EU, a large number of sectoral sanctions, and the refusal of some counterparties to fulfill contracts. Companies had difficulties with chartering ships, and foreign accounts of some traders were also frozen. As a result, Russian coal exports decreased by 1% to 221.2 million tons. On the one hand, the decline is not significant, since in 2021 the export of Russian coal reached an absolute maximum, the report says. But, on the other hand, in 2022 the global coal market is on an upward trend due to the economic recovery after the pandemic, so exports were expected to grow by more than 5%.

One of the negative moments for coal companies was the suspension in March 2022 of the rules for non-discriminatory access of carriers to the railway infrastructure. The consequences of this decision will be observed in 2023. In addition, the state increased the fiscal burden on the industry in 2022. According to market participants, the main direction of state support should be the creation of the Russian bulk fleet, including with the participation of private Russian companies in the framework of PPP. It also proposes the development of coal transportation along the Amur and Ussuri rivers, oriented for export to China, which will partly help overcome bottlenecks in the railway infrastructure. Among other things, it is proposed to remove restrictions on the inclusion of coal companies in the state program of subsidizing interest rates on loans.

In 2023, the situation in the industry will seriously deteriorate, says Sergey Grishunin, managing director of the NRA rating service. Prices have significantly decreased not only to the level of 2022, but even relative to 2021, which calls into question the profitability of export shipments of raw coal of non-premium grades D and G, mined by underground mining. Secondly, the analyst says, the situation on the world energy markets is not yet in favor of Russian exporters, and there is still a long way to go before a reversal of trends in commodity prices. On the other hand, the expert notes, low coal prices hit all its producers in the world, so we will soon see a reduction in the supply of American, Colombian, South African coal to Europe and Asia, which should lead to an increase in prices within a year and a half.

Evgeny Zainullin