According to the Russian Ministry of Energy, coal production in 2022 may decrease by 6% or about 26 mio t y-o-y.
Energy Minister Nikolay Shuvalov said that since the beginning of the year there has been a slight decline of 0.7% in coal extraction, however, by the end of the year, the figure may reach 6% as a result of the embargo imposed in early August on all Russian coal supplies to the EU. At the same time, the domestic market will be fully supplied.
Given the limited throughput capacity of the Eastern Range, which is operating at the limit of its capacity, with the embargo in place, Russian coal suppliers are forced to look for opportunities to reroute seaborne cargo flows from Northwestern ports to Turkey, China, India, Morocco and other countries in Asia and North Africa. In view of the increasing distance to the final delivery points, not all terminals can afford shipments to these destinations, especially to China and India. Only deepwater terminals capable of handling high-tonnage capesize and panamax vessels, which offer lower freight rates, can export coal to these countries. At the same time the sales price in most deals is close to the production costs, which rose substantially due to increased rail tariffs, cancellation of RZD’s lowering ratios for coal transportation, growth of transshipment rates in ports and significant premiums to freight rates and cargo insurance, offered by international shipowners and insurance companies because of the secondary sanctions risks.
Despite the upsurge in imports of Russian coal by China, India and the Middle East, Russian exporters are forced to conclude contracts at more than a 50% discount to global indices. In the current market environment, Russian coal producers have to revise their production plans downwards, while some minor enterprises are likely to face substantial reduction or total suspension of coal extraction.
Earlier, the Ministry of Energy reported that Russia is negotiating with China on ramping up coal supplies. India also plans to boost Russian coal imports to 40 mio t by 2035. Nevertheless, the ministry expects exports to fall by the end of 2022.
Russia produced 438.1 mio t of coal in 2021, of which 214.4 mio t was exported, according to CDU TEK (Fuel and Energy Central Dispatch Department).