Russia's proposed spree of measures to support coal producers may aid exports

Russia's proposed spree of measures to support ailing coal producers may provide the suppliers with a much-needed boost for exports in the coming months, sources said.

Russian President Vladimir Putin recently approved a series of emergency support measures in a bid to help the country's coal industry, according to media reports, which has been reeling under pressure from Western sanctions, rising cost of production, weakening global thermal coal prices and logistical constraints.

Except for a surge in exports in 2022 at the onset of the war with Ukraine, Russian thermal coal exports have been declining, coupled with steep fall in prices as its primary buyers in Europe stopped their purchases of Russian material, prompting suppliers to tap buyers in the Asia-Pacific and the Mediterranean, Middle East and North Africa regions.

Russia's thermal coal exports dropped to a five-year low of 122.8 million mt in 2024, down from 132.3 million mt in the previous year, according to S&P Global Commodities at Sea data.

The Platts-assessed FOB Russia Pacific 6,300 kcal/kg GAR coal price full-year average in 2024 stood at $96/mt compared with $169.35/mt in 2022, when the prices had touched an all-time high of $255/mt at the beginning of the Russia-Ukraine war. Similarly, on Russia's west coast, the Platts-assessed FOB Russia Baltic 6,000 kcal/kg NAR coal full-year price average slumped to $73.45/mt in 2024, down from $160.65/mt in 2022.

Russian thermal coal producers struggle

The emergency support measures approved by Putin will focus on discounts on transportation and the likelihood of export agreements for key suppliers, along with financial assistance for miners, the media reports said.

"There was a letter signed by Putin, but still needs to get Ministry of Finance and the Fed Antimonopoly Services approval, which will come, but might take a bit of time," a UAE-based trader dealing in Russian thermal coal said.

Russian thermal coal producers have struggled with operational costs due to lower prices being offered by buyers from Asia-Pacific and the Mediterranean/MENA region, coupled with higher logistics costs, as all coal producers are required to pay a railway tariff of around 18%, which was introduced at the beginning of the year, to move coalfrom mine to port.

Russian Energy Minister Dmitry Islamov told lawmakers at a recent committee hearing that the Russian coal industry crisis has become severe, with many producers shutting down their entire facilities, the reports said.

"The talk of a reduction or discount in rail tariffs and costs will help ease some of the financial burden," the trader said.

Another UAE-based trader dealing in Russian thermal coal said that if the proposal is passed, then the discount for producers to transport thermal coal from mines to Far East ports via rail will work out to be around $10/mt.

In a letter April 25, Russian Deputy Prime Minister Alexander Novak proposed that government provide a 60% discount on fees levied for long-distance transportation and a 10.5% discount on export-oriented transportation fees for the rest of 2025, along with a 12.85 discount on rail fees to the country's western and southern ports, the report said.

The other trader said the government will not allow the mines to be shut down because doing so would involve many workers.

Exports conundrum

Market participants said the proposed relief measures could allow suppliers to be more flexible on the prices quoted in the seaborne market.

Russian suppliers, who face stiff competition from suppliers in Colombia, Indonesia and South Africa in the high-calorific value thermal coal market, may be able to compete with them once the measures are in effect. However, the major challenge for them and other suppliers is demand weakness in the Asia-Pacific region, primarily driven by China and India, due to their higher domestic production.

The media reports suggested that the government should also explore the possibility of asking India and China to abolish the import duty on Russian coal. In 2024, China restored a 6% import duty on coal coming from sources without shared free trade agreements.

"For China and India, it would be good for them if tariffs are lifted," the trader said. "However, demand in both markets is not as strong, and the thermal coal market is still somewhat oversupplied."

China's import of Russian thermal coal fell to 8.4 million mt in the first quarter, down from 11.8 million in the fourth quarter of 2024, and so far in the second quarter, China has imported 7.8 million mt of Russian material.

Meanwhile, India's import of Russian material rose to 2.5 million mt in the first quarter, up from 1.6 million mt in the previous quarter, and in the current quarter, India's import of Russian thermal coal has already touched 3.9 million mt, the CAS data showed.