Moscow will be hard-pressed to divert coal to Asia

Launceston — Russia is putting on a brave face when it comes to Europe’s planned ban on coal imports, with Moscow saying it will simply sell to other markets.

By other markets, most likely Asia is meant, but Moscow is being hopelessly optimistic if it thinks Asia is going to swing dramatically towards Russian coal and replace what is lost in exports to Europe.

The EU agreed on April 8 to a series of new sanctions on Russia, including banning imports of coal, which came to a total of 48.7-million tonnes in 2021. Russia hit back later that day, saying coal exports would be redirected to other markets, and that the ban will backfire on Europe.

But Moscow could be in for a shock if it is banking on Asia as there are already signs that the most populous continent is likely to buy less Russian coal, rather than more, in the coming months.

Japan, the world’s third-biggest coal importer, has already moved to ban imports from Russia, with trade minister Koichi Hagiuda saying on April 8 that the country will end purchases from Russia, and seek to find alternatives.

Russia supplied about 11% of Japan’s coal imports in 2021 and ending purchases is likely to come at a high cost, given that the alternatives appear to be limited to more expensive, and geographically distant, cargoes from Australia and the US.

Japan already appears to be scaling back imports of Russian coal, with commodity analysts Kpler estimating April’s imports will reach about 687,000 tonnes, down from 871,000 in March and official customs data of 1.57-million in February.

If Japan cuts out Russian coal completely, it means that almost 20-million tonnes of coal will be looking for new buyers, given that Japan’s official imports from Russia were 19.73-million in 2021.

China, the world’s biggest coal importer, would seem an obvious destination for Russian coal, in the light of Beijing’s consistent support for Moscow after the invasion of Ukraine on February 24. But it is also looking at curbing total coal imports by as much as 30% in 2022 amid record domestic output and the high cost of imports.

China has acted to cap domestic coal prices to limit electricity costs. This renders thermal coal imports largely uncompetitive, aside from low-energy, but also low-impurity, coal from Indonesia that is blended with higher ash domestic coal for use in power plants in China’s south.

China has also been importing less Russian coal in recent months, with Kpler data for seaborne arrivals showing 2.4-million tonnes in March, 2.34-million in February and 2.84-million in January.

This contrasts with the period from March to December 2021, when China’s monthly seaborne imports from Russia did not drop below 3-million tonnes, and peaked at 5.32-million in August, according to Kpler.

While China may be happy to buy discounted Russian coal, there are question marks as to whether it needs to ramp up volumes; domestic output is strong and Russian coal may not be suitable as a replacement for Indonesian cargoes.

Best hope

India, the world’s second-biggest coal importer, is probably Russia’s best hope in Asia as New Delhi has also refrained from condemning the attack on Ukraine and will be keen to secure cheaper energy supplies.

India is not a major buyer of Russian coal, with Kpler data showing imports of 1.04-million tonnes in March, and this was the most since January 2020. More typical monthly volumes from Russia are 400,000- 600,000 tonnes, which makes Russia a minor supplier to India compared with Australia, Indonesia and SA.

But with trading platform globalCOAL assessing Australian thermal coal at Newcastle Port last week at $297.40/tonne, and the SA equivalent at $265/tonne, India simply cannot afford to import at these prices as power plants would be loss-making.

The question for the market is whether India can secure Russian coal at a steep enough discount to make it worthwhile, in view of the relatively long sea voyages that would be required from both Russia’s European or Asian ports.

South Korea, Asia’s fourth-largest coal importer, is also steering away from Russian cargoes, with at least one utility halting purchases after the attack on Ukraine. South Korea bought in a range of about 1.2-million to 1.5-million tonnes a month of Russian coal, according to Kpler.

Outside Asia’s major coal importers there is some scope for Russia to boost shipments to smaller buyers, especially those feeling the pinch of the high prices.

But even if Pakistan and Bangladesh bought most of their coal from Russia, it would be nowhere enough to offset the likely losses from Japan, South Korea, and also China.

Reuters