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Europe's loss on Russian coal translates into sizeable gains for Asia, Turkey

Highlights

China, India import largest share of Russian material

Asian coal prices under pressure

Turkey's share of Russian coal rises in Mediterranean

With Europe's sanctions on Russian coal following its invasion into Ukraine, Asia and Turkey are emerging as direct beneficiaries, highlighting the change in trade flows in the global thermal coal markets six months after the war broke out.

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A half-yearly analysis of data from S&P Global Commodities at Sea shows that with Russian coal being offered at a discount compared to the Australian and the South African origin material in the absence of European buyers, countries like China and India have been leveraging it the most.

Post the war, which broke out in February, China's import of Russian coal has been constantly rising. From 0.9 million mt in March, imports rose to 5.3 million mt in July, and 4.6 million mt in August so far. Meanwhile, India's imports also increased from 0.7 million mt in March to 2.3 million mt in August till date.

To put things in perspective, China was importing an average 2.8 million mt over March-August last year, while India's average was 0.4 million mt over the same period, data from S&P Global showed.

Supplies from Indonesia -– the world's largest exporter -– declined by 26% on the year to Mainland China to 78 million mt in the first seven months of 2022.

At the same time, Indonesian coal supplies to India represented a 30% share of total exports in the January-July period, up from 20% a year ago. The rise in Indonesian supplies coincided with India lowering coal imports from South Africa.

Other Asian regions may beef up Russian fuel

Apart from India and China, "Japan, South Korea and Taiwan will import more from Russia, with price being the major factor. Despite sufficient supply, these countries are importing as who knows how prices will fare in the future," a Europe-based buyer said.

Imports of Russian coal by South Korea largely remained unchanged, and to some extent increased, over the last six months, contrary to its commitments in stopping imports from the former.

In the Mediterranean region, Turkey's imports rose from 0.6 million mt in March 2022 to 2.1 million mt in August so far. The country had been importing less then 1 million mt on an average over the same period last year, the data showed.

A Singapore-based trader said with China and India not accepting Australian high-ash 5,500 kcal/kg NAR coal, buyers have become disinterested in the product. They can purchase the much more cheaply available 6,000 kcal/kg NAR coal and blend it with lower CV coal from domestic production or the ones imported from Indonesia, the trader said.

Price a key factor

The price of Newcastle 5,500 kcal/kg NAR coal shows the falling market share of Australian coal outside the Japan, South Korea and Taiwan market.

The grade's price was assessed at $185/mt FOB, very close to the average price of $185.20/mt FOB year-to-date. In comparison, the FOB Russia Pacific 6,300 kcal/kg GAR was assessed at $151/mt FOB, available to Indian buyers at $175-$185/mt CFR India.

The trade flows are reflected in the delivered price for 5,500 kcal/kg NAR coal price in China and India.

The 5,500 kcal/kg NAR CFR South China price was at $151.65/mt on Feb. 23, a day before Russia's invasion into Ukraine, and was assessed at $155.50/mt on Aug. 24, according to S&P Global data. The price touched a high of $284.65/mt on March 11, but has slowly edged lower as the market reflected more of Russian coal being imported to China.

According to Platts Analytics, with rising coal stocks and the flexibility for power plants to decide the imported coal use in power generation, thermal coal imports are expected to trend down in August from the high in June.

"Indian industrial users like cement and sponge iron makers have tried Russian coal and find it acceptable. Hence, heavily discounted Russian coal will continue to make greater inroads into India as EU's ban on Russian coal kicked in Aug. 10," Platts Analytics said in a report dated Aug. 11. India's thermal coal import forecast for 2022 remains almost unchanged at 162 million mt, compared to 161 million mt in 2021.

The last six months saw a turmoil in global thermal coal markets, especially because of the Russia-Ukraine war and the European sanctions that followed on the Russian coal. The war not only led to changes in trade flows, with Europe scrambling for coal from other exporting nations but also impacted prices to a large extent.

As time flew, prices of some coal grades and origins corrected from their record high levels, but market participants feel there is still a long way to go as far as market stability is concerned.

CIF ARA 6,000 kcal/kg NAR physical coal assessment rose to $380/mt on Aug. 24, from $176/mt on Feb. 18, while FOB Baltimore 6,900 kcal/kg NAR coal for September loading was at $280/mt on Aug. 24 as against $143.85/mt on Feb. 18, according to S&P Global data.

However, prices of FOB Richards Bay 5,500 kcal/kg NAR price and FOB Kalimantan 4,200 kcal/kg GAR have eased after rising to record high levels in the month of March and April, at $243.85/mt and $76/mt, respectively, on Aug. 24.

While the downward trend in Indonesian prices were seen due to weaker demand from China and India amid availability of cheap Russian coal, South African prices fell amid weak demand from Europe because of logistical issues.