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Chinese buyers hesitate to procure Russian coal amid Ukraine conflict: sources

Highlights

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Some buyers in China have been advised by banks and higher authorities to refrain from procuring Russian coal due to possible sanctions amid Russia's invasion of Ukraine, sources told S&P Global Platts Feb. 24.

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Market participants globally are cautious about trading Russian coal after sanctions were imposed on Russian banks and high-level officials after Moscow escalated its conflict with Ukraine Feb. 21.

On Feb. 24, Russian President Vladimir Putin approved military operations in eastern Ukraine.

"It seems like some Chinese state-owned enterprises are staying away from Russian coal for the moment. I tried to sell Russian coal to a state-owned group, and they cited the invasion and said they were instructed to stay away from it for the time being," a South Korea-based trader said.

Another China-based trader added that banks were heard warning traders against procuring Russian coal. Sources said that ship owners were warned against commuting to Suek port and traders were wary of docking at the port.

While some pointed towards advisories by banks and authorities, others said that the price of Russian coal was already uncompetitive in Chinese markets.

Sources said that an official communication had not been issued and that further clarity was awaited.

The price of Russian 6,000 kcal/kg NAR coal had risen to $191/mt on Feb. 18 from $157/mt FOB on Jan. 7, according to Platts data. Traders indicated the price at $210/mt FOB Feb. 24.

Russia exported 136.7 million mt thermal coal in January-August 2021, according to Platts Analytics. The country exported 193.8 million mt in 2020, the data showed.

The data also showed that Russia was the second largest exporter to China after Indonesia, with China importing 26.69 million mt in January-September 2021 and 18.81 million mt in 2020.

Coal prices surge in Indonesia, Australia

Chinese buyers staying away from Russian coal could boost the prices of thermal coal from Indonesia and Australia, sources said.

"With them [Chinese buyers] stepping away from Russian coal it is likely driving up sentiment around the other Pacific supplies from Indonesia and Australia, as market participants likely expect them (the Chinese buyers) to come back to the market for those supplies. With already tight spot coal supplies before this, it seems to boost expectations even further," Wendy Schallom, Senior Analyst, Coal & Power with Platts Analytics said.

The price of Indonesian 4,200 kcal/kg GAR has already risen in 2022 due to supply tightness since January, when Jakarta announced a blanket ban on overseas sale of coal as domestic inventories ran low.

The price of Indonesian 4,200 kcal/kg GAR rose to $77.05/mt FOB Feb. 24 from $63.45/mt FOB Dec. 31, 2021, Platts data showed.

Traders said that Chinese buyers had refrained from procuring coal heavily during the Lunar New Year and in the run up to the Winter Olympics due to environmental concerns. Sellers expect Chinese buyers to pick up the pace of purchasing Indonesian coal moving forward.

The prices of Australian-origin coal are also expected to gain due to demand from East Asian countries such as Japan, Korea and Taiwan.

China's unofficial ban on Australian coal remains in place.

Logistical bottlenecks and wet weather conditions leading to supply tightness have already supported Australian coal prices, which rose to $157.25/mt FOB on Feb. 23 from $103.50/mt FOB Dec. 31, according to Platts data.

"There is no fair value in the markets under these circumstances, sellers can quote any price and trades will depend on the buyer's desperation," an Indonesia-based trader said.