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Russian coal hindered on its way to Europe

In the beginning of 2022, Russian coal companies faced insufficiency of railway capacity at the approaches to the North-Western ports, which threatens with nonfulfillment of deliveries to European customers. Some stevedores operating in the Baltic ports of Russia told IAA PortNews that the volumes approved by Russian Railways for January are 30% below the plan. The monopoly confirms the restrictions and attributes them to a slow handling of cargo in ports, particularly due to the frosty weather.

Russian manufacturers of coal have faced insufficiency of railway capacity this January, which hinders implementation of contracts on delivery of coal to Europe via the ports of the North-West region of Russia. Some of the major coal companies have shared the problem with IAA PortNews while stevedores operating in the ports of Saint-Petersburg, Ust-Luga, Vysotsk and Murmansk have confirmed it.

One of the sea terminals in the North-West region attributes the decrease of coal deliveries to the lack of traction vehicles and irregular supply of railcars to the port stations. Reportedly, almost 600 loaded railcars bound for the terminal stand idle despite the schedule disruption. From mid-December 2021, average daily delivery of railcars to the port station is below 400 units which is almost 30% less than agreed.

“Requests of most customers have been reduced by 30%. Having submitted additional requests for fulfillment of the agreed volumes, the companies are waiting for the decision of the monopoly”, says a source of IAA PortNews in one of the logistic companies. According to the market players, the problem may continue till January 15.

Russian Railways’ Oktyabrskaya branch has forwarded IAA PortNews’ questions to the monopoly. Russian Railways attributes the situation to a 3.8-pct growth of loading of cargo bound for ports in the first days of 2022 while average unloading at sea terminals makes only 58% of their handling capacity. “Among the causes are failures of handling equipment, unpreparedness for handling of frozen cargo, storage congestion due to delay of ships. Hence the congestion of railcars at the port stations”, said Russian Railways adding that some terminals have reduced the scope of handling by almost a half due to a grab discharge of frozen coal.

Russian Railways says it had to impose 17 restrictions on loading of coal bound for certain sea terminals and tank farms in January. According to Russian Railways, it suspends loading of export cargo and hinders movement of cargo trains at railways to ports.

In 2021, cargo loading on the network of Russian Railways rose by 3.2%, year-on-year, to 1.28 billion tonnes.

Loading of coal totaled 371.7 million tonnes, up 5.2%, year-on-year. According to data obtained by IAA PortNews, loading of coal bound for Russian ports rose by 11.7% to 153.1 million tonnes in January-October including 50.2 million tonnes of coal handled by the ports of the North-West region (+7.3%, year-on-year). Meanwhile, the loading of coal bound for the Eastern ports rose by 2.7%.

Over the year of 2021, Russian ports of the North-West region handled almost 59 million tonnes of export coal with the port of Ust-Luga accounting for the bulk of the volume (some 68%). It is followed by the ports of Murmansk, Vysotsk, Kandalaksha, Vyborg and Kaliningrad. As of autumn 2021, the largest importers of Russian coal were the Netherlands (almost a quarter of the volumes handled in the Baltic ports of Russia), Morocco (14%), Germany (11%), Brazil (8%), Italy (7%) and France (4%). Russian coal is also exported to 26 more countries.

In the opinion of Aleksey Bezborodov, CEO of the analytical agency Infranews, it is too early to speak about the responsibility for the disruption of supplies after only seven days of the new year. He also emphasizes that the commercial confidentiality in view of which neither shippers nor Russian Railways reveal the contracted or actual volumes of transportation makes it more complicated to assess the situation adequately. The expert expects the problem with the shipment of coal via the North-Western ports to be resolved in the coming days.

However, Contemporary Analytical Agency (CAA) says that, apart from financial losses incurred by Russian coal suppliers, the situation with coal delivery to the ports of the North-West region brings reputational risks associated with nonfulfillment of contractual obligations to European consumers.

Logistic problems with shipment of coal bound for the North-Western ports began in Q4’2021, says CAA. “We do not see any prerequisites for improvement of the situation, at least in the short run”, says the Agency referring to Rosterminalugol, the largest coal terminal in the Baltic region of Russia, which fell short of the Q4’2021 target set by Russian Railways by 1.8 million tonnes. In January-December 2021, the terminal accepted 24.3 million tonnes of coal, 2.2 million tonnes less than in 2020.

“We see a severe deficiency of high energy coal in the region, where the demand is out of proportion to the supply. Amid the current system restrictions and considerable lack of supply in the Baltic region, we do not rule out that API2 index can exceed $200 per tonne again. As of today, the premium to API2 is $20 per tonne in the region and we consider it to be essentially undervalued. Despite a high demand, the suppliers can’t supply more due to current logistic problems”, says CAA.

Besides, the Agency says the escalation of protests in Kazakhstan, one of the major suppliers of coal to Poland and a large supplier of coal to Baltic ports, may also have a negative impact on coal exports to the countries of the Baltic region.