CAA Contemporary Analytical Agency

World coal market: brief overview

Last week, the quotations of thermal coal in the EU again pulled back from the historical highs below 295 USD/t amid easing fears of Russian supply disruptions, owing to the positive developments in the negotiations between Russia and Ukraine. The entire energy market in Europe, including oil and gas prices, also showed a decline. At the same time, German leading energy company RWE warned that a hasty ban on Russian coal would hurt households and industry, while a shift to coal from other countries could lead to further price upside. Coal stocks at ARA terminals decreased to 2.7 mio t (-0.3 mio t w-o-w).
Indices of South African material also fell below 240 USD/t, despite South Africa is still experiencing a supply shortage, on the back of declining production and exports. In 2021 coal extraction amounted to 229 mio t (-18 mio t or -8% y-o-y), while exports fell to 66.2 mio t (-8.7 mio t or -12% y-o-y) the lowest level in more than 20 years.
In China, spot prices for 5500 NAR strengthened by 10.00 USD/t to 246 USD/t FOB Qinhuangdao. Quotes of thermal material in the Chinese domestic market continued to rise, that was partly due to the uncertainty of coal supply in connection with the expected maintenance of the Daqin railway line, that will be within 25 days of April. Also, China is currently experiencing a COVID-19 outbreak, which along with heavy rains in northern provinces and safety inspections at mines is hampering supply growth.
Australian coal high-CV index 6000 adjusted below 320 USD/t. At the same time, the vessels queue at Australian ports increased significantly, resulting from the temporary closure of the railroad leading to the port of Brisbane caused by heavy rains and floods.
Indonesian material 5900 GAR fell to 238 USD/t, following a general downward trend on global markets. According to market participants the authorities are putting pressure on local coal companies to ensure supplies to the domestic market because of the current deficit, which is estimated at 13 mio t for this year. Some exporters fear that the authorities may re-impose a temporary export ban.
The shortage of metallurgical coal supply on the world market amid heavy rains, storms and floods in Australia, as well as the attempt to replace Russian coal with shipments from other countries supported the indices of Australian metallurgical material above 665 USD/t.

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World coal market: brief overview

Over the past week, European thermal coal quotations hit new historic highs again amid limited supply on the global market and Russia's ongoing military operation in Ukraine. Russian coal shipments have decreased since the start of the conflict in Ukraine. Shipping data show that coal continues to be supplied from Russian ports to Europe, but some major energy companies, including Centrica, Vattenfall, Orsted, and BP, have taken a wait-and-see approach to buying Russian coal, fearing further sanctions. In fact, global coal markets became the object of an experiment on the hypothetical withdrawal of 1/6 of the supply, accounting for the share of Russian coal in the world market, that led to an unprecedented rise in prices, which may intensify, at least in the short and medium term. As of March 09, 2022, the indices surged above 415 USD/t, subsequently correcting to 360 USD/t. Coal stocks at ARA terminals decreased to 3 mio t (-0.1 mio t w-o-w).
South African prices continued to rise above 410 USD/t, primarily on the back of the conflict between Russia and Ukraine. European consumers began to actively turn to suppliers from South Africa, but shipments from this region are severely constrained amid continuing problems with the Transnet railway line, connecting the coal-producing provinces of South Africa and the port of Richards Bay. Due to the current logistical issues coal supplies from South Africa in March 2022 may be reduced by 40%.
In China, spot prices for NAR 5500 climbed by almost 50 USD/t up to 235 USD/t FOB Qinhuangdao. Quotations of thermal coal in the Chinese domestic market also continued to soar. In the current situation of limited supply and progressive price growth, China's National Development and Reform Commission (NDRC) announced plans to accumulate coal inventories of 200 mio t, increase gas storage by 5 billion m3 and build up electricity reserves to 30 GW. NDRC also plans to lift coal production to keep prices down. According to NDRC FOB 5500 spot prices should be capped at 142 USD/t and 110/t for 5500 ex works (EXW).
Australian quotes rose above 410 USD/t, following the global trend of surging coal indices, driven by limited coal supply. European consumers are trying to replenish coal stocks given the shortage of material in the Baltic Sea. However, supplies from Australia are hampered by logistical disruptions caused by heavy rains and storms as a result of La Nina weather phenomenon.
Indonesian 5900 GAR jumped to 270 USD/t, adding 110 USD/t for the week, caused by fears of further cuts in Indonesian export supplies. Indonesian Ministry of Energy and Mineral Resources announced that it will more closely monitor the fulfillment of commitments to supply coal to the domestic market. The ministry instructed the state energy company PLN to monitor the volume of deliveries, transportation and coal unloading at destinations. In 2022 the supply of Indonesian material on the world market is likely to remain tight, that may lead to further increase in global coal prices.
The shortage of metallurgical coal supply on the world market amid heavy rains, storms and floods in Australia, as well as attempts of global consumers to replace volumes of Russian material, strengthened Australian coking coal indices to 650 USD/t.

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Vostochny Port to expand its throughput capacity up to
70 mio t

The Russian state regulator approved the project for the reconstruction of the berths of the stevedoring company JSC Vostochny Port. It is expected that after the upgrade, the transshipment capacity of the largest coal terminal in the Far East will increase to approximately 70 mio t/year from current 50 mio t.
The reconstruction envisages an extension of the existing 300-meter berth No. 51. The project also provides for the construction of a pier 24 meters wide and an installation of stationary belt conveyors for feeding coal to shiploaders.
The depth at berths No. 51 and 52 will amount to 16.5 meters with a further increase to 18 meters, while the dredging operations on the approach channel and in the maneuvering area of two piers will provide a design depth of 19 meters, making it the deepest terminal in the region.
With the already existing coal transshipment throughput expanded up to 50 mio t in 2019, JSC Vostochny Port in 2021 handled only
25.0 mio t of coal (-2.0 mio t or -7.4% y-o-y), which is just half of the current capacity.
The negative trend is largely caused by logistical constraints on the Russian Railways (RZD) network and a reduction in coal transportation schedules by RZD amid limited capacities of the Baikal-Amur Mainline (BAM) and the Trans-Siberian Railway (TSR). Thus, so far RZD is unable to ensure coal shipments in the required volumes and, as a result, port facilities in the Far East remain underutilized, hindering the increase in Russian coal exports.

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Russia to boost coal exports to China

Russia is negotiating to enhance coal supplies to China. Potential annual growth could reach 50 mio t in case of favorable market conditions and increase in railway carrying capacity.
China is already the largest importer of Russian coal. It accounted for almost 18% or 39.6 mio t of export supplies from Russia in 2020. In 2021, Russian coal exports to China surged to 57 mio t (+17.4 mio t or +44% y-o-y), while total exports of Russian coal in 2021 amounted to about 225 mio t.
Currently Russian coal companies are poised to expand supplies to China.
Kolmar plans to double coal output by 2023 up to 24 mio t per year and increase shipments to China to 9 mio t of coal concentrate.
Elgaugol supplied more than 8.5 mio t to China in 2021, more than 3 times higher than in 2020, with the shipments planned for 2022 in the amount of 16–18 mio t.
Sibanthracite also intends to ramp up exports to the Chinese market. In 2021, the company's supplies to China increased by 18% to 8.4 mio t and in 2022 its exports may grow by more than 30% and exceed 11 mio t.
SUEK lifted exports to China by 20% to 7.6 mio t. The company sees an additional opportunity to increase deliveries to China through railway border crossings up to 2.5 mio t per year.
China is keen to import coking coal due to its shortage, caused by the embargo on supplies from Australia. Another driver, which may affect the growth in demand for seaborne material could be the tightening of coal mining regulations in China.
However, a significant increase in deliveries to China largely depends on the development of the Baikal-Amur Mainline (BAM) and Trans-Siberian Railway (TSR). In 2020, the railway carrying capacity of the Eastern range was 144 mio t, including 122 mio t accounted for coal. As part of the second stage of the modernization of the Eastern range, the throughput capacity should increase to 180 mio t in 2024. The upgrade of the infrastructure will ensure the capacity growth by 30-40 mio t, but it may take from four to seven years.

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Coal production in Kuzbass up 10% in Jan-Dec 2021

Under the Ministry of Coal Industry of Kuzbass, in January-December 2021 coal mining enterprises in Kuzbass produced 243.1 mio t of coal (+22.4 mio t or +10.1% to January-December 2020). The production of coking coal during this period decreased to 71.7 mio t (-2.8 mio t or -3.8% y-o-y), whereas thermal coal extraction volumes amounted to 171.4 mio t (+25.2 mio t or +17.2% y-o-y).
Coal companies produced 156.0 mio t (+16.7 mio t or +12.0% y-o-y) at open-pit mines and 87.1 mio t (+5.7 mio t or +7.0% y-o-y) through underground mining.
In December 2021, 16.9 mio t of coal were delivered to end-users, including 11.4 mio t (-0.3 mio t or -2.6% y-o-y) for export,
2.8 mio t (flat y-o-y) to Russian metallurgical companies and 1.3 mio t (+0.1 mio t or +8.3% y-o-y) to local coal-fired power plants.
As of January 01, 2021, coal stocks in Kuzbass totaled 17.2 mio t (+1.0 mio t or +5.5% to January 01, 2020).

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