Will China remain the main consumer of Russian coal?

China is the main importer and at the same time the largest producer of coal in the world, with an increase in purchases from 200 million tons in 2015 to 300 million tons in 2019. But the anti-COVID policy subsequent years led to a reduction in the demand for this resource as a result of a decrease in overall business activity in the country. In 2022, coal imports to China fell to 265 million tons.

According to the General Administration of Customs of the People's Republic of China, the total volume of coal purchases from all supplying countries in January-November 2022 decreased by 10,1% compared to the same period last year, while in monetary terms it increased by almost 25%. It should be noted that from January 2023, China is moving towards easing anti-covid measures and gradually abandoning the “zero tolerance” policy, which suggests an increase in growth. economic activity in the Middle Kingdom and, as a result, an increase in the consumption of all energy resources, including coal. It is likely that before 2030 China will return to the volume of imports in 2019.

История вопроса

From August 10, 2022, the fifth package of anti-Russian sanctions banned the supply of our coal to the EU, which at that time accounted for approximately 23% of all exports of the domestic coal mining industry. The only country that did not join the embargo was Turkey.

At the same time, the EU decided to replace coal with goods previously supplied to China from Indonesia, naturally from Australia, South Africa and some other countries. The Celestial Empire itself refused deliveries from Australia against the backdrop of difficult geopolitical processes. This happened in 2020 for a combination of reasons:

1) a ban on the development of 5G networks in Australia, which Huawei was supposed to take up in 2018;
2) Australia's intention to investigate the causes of the COVID-19 pandemic in China in order to find who is responsible;
3) a 2021 agreement between Australia, the UK and the US on a partnership in the field of defense and security called AUKUS.

After that, interruptions in logistics and disproportions in supply and demand for energy and coking (metallurgical) coal began to appear on the world market. But the point is not only in the redirection of transport flows from Asia and Australia to Europe, but first of all, in the fact that the EU refuses Russian gas, which means that it will have to buy more coal and forget about “clean” energy. Otherwise, many European countries will have nowhere to fill the shortage of electricity. It got to the point that the European Union, a month after the introduction of the embargo, in September 2022, eased sanctions on coal supplies.

But the result was still not long in coming - only from August to December, the goods increased in price by 10%, and on average in 2022 the cost of thermal coal more than doubled compared to 2021, reaching more than $ 400 per ton in moments. Experts suggest that during 2023 the world price of energy coal may drop to $300 per ton, although no one else will see the previous prices.

How much does Russian coal cost for China?

Data from the July report of the Energy Development Center shows that we supply coal to China with a 45% discount relative to regional benchmarks, losing about $200 per tonne in monetary terms. In an interview with RBC TV channel, Anna Tsivileva, chairman of the board of directors of the coal producer Kolmar, said that the discount is one third of world coal prices.

However, Russia's losses at discounts are more than offset by three factors:

1. Increase in the price of coal. Selling coal even for $200/ton instead of $400, the domestic coal mining industry still remains with a good profit, if only because in 2021 it made good money at prices of $150/ton.
2. Depreciation of the ruble. All payments within the country, including the cost of wages and equipment upgrades, are carried out in rubles. With the weakening of the national currency, exporters receive more money per ton of coal in ruble terms.
3. Potential of the Asian market. It is able to absorb all domestic production. The current picture of global coal demand confirms this. If the entire EU in 2021 consumed only 6% of this energy resource, then India - already 12%, and China - 54%. That is, two-thirds of the world demand falls on two states that are friendly to us.

In this scenario, the EU is once again shooting itself in the foot, failing to achieve its strategic goal of weakening the Russian economy, but dooming itself to additional costs. It should be noted that Russian coal is of very high quality in terms of purity, ash content and calorie content. The countries of Europe saw this in hindsight when they faced increasing accidents at their coal-fired power plants due to the fact that the raw materials they purchased turned out to be a large percentage of ordinary earth and even foreign metal objects. And also with the fact that more imported coal is required to generate the same amount of electricity as was previously produced on Russian raw materials.

Russian coal redirected to China

Coal deliveries to China from Russia increased from month to month, setting a historical record in August (8,54 million tons, or $1,4 billion), then decreased due to problems with logistics. The difficulties of exporting to the Middle Kingdom are related to the underdevelopment and unpreparedness of the railway infrastructure for transportation to the east, as well as to the insurance of sea cargo, which is mainly carried out by companies from countries that are unfriendly to us. According to various industry experts, a complete restructuring of supply logistics, an increase in transportation capacity and changes in the insurance and freight system will take from 2 to 5 years.

One way or another, but today approximately 85% of domestic coal exports fall on the PRC, in monetary terms - this is about 1,1 billion dollars a month. Remaining in second place after Indonesia, we pushed the competitor. And if in 2021 Russia provided about 20% of all China's coal needs, then in 2022 this figure approached 30%. According to Bloomberg, by mid-December 2022, the domestic coal mining industry reached a historic high in exports by sea. However, it should be borne in mind here that Russia supplies the main volumes of coal by rail.

While maintaining the growth rate of coal supplies to China, by the end of 2023, our exporters will take the place of superiority from Indonesian competitors. Not the last role in this will be played by the discounts that we provide to Chinese energy and metallurgical companies. Unless, of course, undesirable events occur, such as stagnation in transport logistics or Australia's return to the Chinese market. The latter event may take place, because, according to Kommersant, Australian Foreign Minister Penny Wong paid an official visit to China for the first time since 2019, where she and her colleague Wang Yi held talks on the removal of trade barriers.