Russia’s coal industry is in a bind as Western sanctions, falling Chinese demand for imported coal, and fierce competition with Indonesia on other Asian markets challenge the profitability of Russian coal exports, Kpler said in a new analysis on Wednesday.
With limited room for growth on export markets, Russian producers face a difficult decision—either accept low prices and negative margins or reduce production, Firat Ergene, Senior Insight Analyst – Dry Bulk at Kpler, says.
China’s overall coal import demand this year is expected to slump compared to previous years, as domestic production rises to record highs.
China is unlikely to see strong rebound in coal shipments, similar to the 2023-2024 boom, in the coming years, according to the energy flows analytics firm.
The slowdown in Chinese coal imports has intensified competition from Indonesia, which has weighed down on Russian coal because it’s more expensive to ship the fuel from Russia’s Far Eastern ports than from Indonesia to China.
Amid oversupply, China has been cutting imports and growing coal exports for most months so far this year. Although coal imports rebounded in September due to a drop in domestic output and soaring power demand during heat waves, imports are still trending lower compared to last year’s levels. In 2024, shipments into China soared as Beijing took advantage of plunging international coal prices.
China is Russia’s main coal buyer, but limited import demand growth is constraining the key export market for Moscow, which turned to China, India, and Turkey after its coal was banned in the EU and other Western countries in 2022 following the Russian invasion of Ukraine.
“Russian producers face a structural challenge regardless of sanctions,” Ergene said.
“They can either maintain high output at low or negative margins, or scale back volumes to support prices. Neither option is attractive,” the analyst noted.
The prospects of Russian coal exports in the long term are now directly tied to consumption trends in China and India. Both coal importers have the capability to reduce their reliance on imports when prices are unfavorable for them, according to Kpler.
By Charles Kennedy for Oilprice.com
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