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Asia unlikely to rescue Russian coal amid Europe ban

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

The European Union agreed on April 8 a series of new sanctions on Russia, including banning imports of coal, which totalled 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’s banking on Asia as there are already signs that the most populous continent is likely to buy less Russian coal, rather than more, in coming months.

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

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

Japan already appears to be scaling back imports of Russian coal, with commodity analysts Kpler estimating April’s imports will reach around 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 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, given Beijing’s ongoing support for Moscow after the invasion of Ukraine on Feb. 24.

But China is also looking at curbing total coal imports by as much as 30% this year amid record domestic output and the high cost of imports.

China has acted to cap domestic coal prices in order to limit electricity costs, a move that renders thermal coal imports largely uncompetitive, aside from low-energy, but also low impurity, coal from Indonesia that is used to blend 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 last year, when China’s monthly seaborne imports from Russia didn’t drop below 3 million tonnes, and peaked at 5.32 million in August of last year, 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, given strong domestic output and the likelihood that Russian coal isn’t suitable as a replacement for Indonesian cargoes.