The coal mining industry is still considered a promising industry at the global level, and coal itself is the most affordable fuel. And this is despite the process of transition of many developed countries to green energy, as this "green transition" is delayed for years, in particular, due to the energy crisis. Demand for coal has been growing throughout 2022. The volume of coal production and exports in Russia in 2023 will remain at the level of last year, and may increase in 2024.
Global coal consumption is growing
According to the report of the International Energy Agency (IEA), by the end of 2022, the volume of coal used in the world increased by 400 million tons (+5%) — from 7.9 billion tons in 2021 to 8.3 billion tons. In the first two quarters of this year, global coal consumption increased to 4.7 billion tons (+1.5% compared to the same period in 2022). First of all, the volume of coal used in industry has increased (+2%). The amount of coal needed to produce electricity increased by 1%. By the end of 2023, analysts at the International Energy Agency expect that coal consumption may remain at the same level as in 2022 - 8.3 billion tons.
Fig. 1. Global coal consumption — the main consumer countries, 2021-2023, mln tons
Source: IEA report, Ministry of Energy of the Russian Federation
It is worth noting that mainly two countries — China and India - provided an increase in global coal consumption. The level of coal consumption by the end of 2022 in the first reached a record high of 4.5 billion tons, and in the second — 1.15 billion tons. Thus, India became the second country to exceed the level of 1.1 billion tons of coal used. It is expected that by the end of 2023, the share of these two countries in coal consumption will reach 70% due to the fact that China will increase coal consumption by another 3.5%, and India by 5%. As of 2022, their share was 68%.
While countries such as India and China are increasing their coal consumption, the European Union and the United States are trying to reduce this volume from year to year. However, in 2022, due to the energy crisis, the EU countries, instead of the planned reduction in the volume of coal used, received a slight increase in mineral consumption - from 444 to 448 million tons. Despite this, it is predicted that in 2023 the EU will be able to lower the level of coal consumption below 400 million tons. It is expected that this year the volumes of coal use in the EU and the USA will amount to 372 (-17%) and 357 million tons, respectively. Korea and Japan will also reduce coal consumption to 117 (-2.8%) and 179 (-1.9%) million tons, respectively.
As for Russia, in 2022, coal consumption in the domestic market increased from 158.3 million tons in 2021 to 181.6 million tons. At the end of this year, stable domestic demand is expected to increase the level of coal use by another 4% (up to 189 million tons).
Coal mining in Russia and domestic consumption in 2023
The IEA in the report notes that the level of coal production in Russia by the end of 2023 may decrease to 429 million tons. The agency's experts attribute this dynamic to a possible drop in demand for Russian coal in Asian importing countries due to the development of their own production and production within the country. However, the Ministry of Energy predicts that this year the volume of coal produced in Russia will remain at the level of last year's figures.
Fig. 2. Coal production in the Russian Federation in 2021-2023 (by month), mln tons
Source: Rosstat
In the first nine months of 2023, 315 million tons of coal were produced in Russia. The level of coal production in the country has remained relatively the same over the past few years: 312.6 million tons in January—September 2022, 315.1 million tons in January-September 2021. By the end of this year, the production level is expected to be 440 million tons of coal, which is comparable to the figures for 2022. According to Rosstat, last year the volume of coal produced amounted to 437 million tons, according to the Ministry of Energy — 443.6 million tons.
In the first quarter of 2023, the volume of coal production amounted to 106.6 million tons, which is 1.6% less than in the same period of 2022 (108.3 million tons). However, if in 2022, from April to September, the production level decreased more than usual, then in 2023 such a decline was no longer observed. Since June of this year, the amount of coal mined has started to grow from month to month. And growth is expected to continue until the end of the year.
Fig. 3. Coal production in the Russian Federation in January-September 2021-2023 by category, million tons
Source: Rosstat
In January-September 2023, the volume of coal mined decreased slightly: from 252 million tons in 2022 to 249.6 million tons (-1%). And if compared with the indicators of 2021, the drop will be -5% (from 262.8 million tons). The volume of brown coal (lignite) production has been growing over the past two years — from 51.9 million tons in 2021 to 64.9 million tons in 2023. It should be recalled that coal is mainly used in the fuel energy, metallurgy and chemical industries. Lignite is also used in chemical industry (as a source of organic substances), at small thermal power plants and for heating private homes.
Coal consumption in the Russian domestic market may increase by 4% — from 181.6 to 189 million tons. The onset of the heating season, as well as the increasing utilization of production capacities of metallurgical companies, may affect the creation of positive dynamics of coal consumption within the country. The work of metallurgical companies creates domestic demand for coking coal.
Russian coal prices have started to rise
Global coal prices have been falling since the autumn of 2022. According to the Gazprombank Price Index Center, in the second quarter of 2023, export prices for Russian thermal coal decreased following the global market. In June, prices reached the lows of the current year. There are several reasons for the fall in value:
- Importing countries increased domestic coal production (in particular, China, India)
- Availability of sufficient coal reserves (due to non-cold winters)
- Increased LNG supply in the European market
- Resumption of coal exports from Australia to China
By the end of the first half of 2023, the average cost of Russian coal exports turned out to be lower than both the values of last year and the annual average of 2021. In June 2023, the price of FOB Far East thermal coal with a calorie content of 5000 kcal/kg was $70/t, 5500 kcal/kg — $ 85/t, $ 6000/t — up to $ 100/t. Thus, the export market of Siberian coal at the end of the second quarter was less premium than the domestic one. The cost of buying coal from local thermal power plants turned out to be almost a third higher than the prices of the export alternative.
Already in the third quarter of 2023, prices for Russian energy coal began to rise. By the end of September, the cost was in the range of 79-100 USD/ton: prices increased by 2-11% relative to the June minimum, depending on the type of coal. Russian coal prices showed an increase due to increased demand from China. In August 2023, it was possible to reach a new record level for coal exports to China — 9.97 million tons per month.
It is worth noting that changes in coal prices in no way affect shipments to the east, since both the Transsib and BAM are maximally loaded and do not have the opportunity to increase export volumes depending on price fluctuations. The monthly volume of coal exported by rail to the ports of the Far East does not exceed the mark of 8 million tons.
How coal is transported at the Eastern Site (Polygon)
In the summer of 2023, it was decided to extend the temporary rules of the hierarchy of transportation at the Eastern Polygon (a Russian term meaning territories beyond the Ural Mountains). Such rules were introduced in March 2022 due to the increasing load on the Eastern territories of Russia (since (due sanctions) a significant part of the cargo was redirected from the West to the Eastern). The temporary rules determine that priority in transportation through the Eastern Polygon is given to goods with high added value (coal is not such), as well as products of companies that have lost Western markets.
Thus, in the first half of 2022, coal was included into the penultimate priority category. Due to this, by the end of 2022, non-coal cargo transportation increased by 3.5%: in particular, the volume of transported non-ferrous metal, paper, and chemicals increased by 45.5%. Russian Railways noted that prioritizing cargo (and shifting coal to a lower priority product category) would increase GDP by 25 billion rubles in a quarter, due to the transportation of about 2 million tons of more profitable cargo.
It is obvious that coal mining companies, for example, in Kuzbass, Buryatia, Khakassia and Tuva, did not like the restrictions on the transportation of raw materials after the volume of coal supplies decreased due to the priority. Therefore, by the end of the first quarter of 2023, the volume of coal exports at the Eastern Polygon amounted to 70% of the total volume of shipments at the site. In particular, such types of coal as anthracite and coking coal received high priority during transportation through the Eastern Polygon. As a result, the share of coking coal transportation in the eastern direction reaches almost 50% (against 36% in 2022).
It is expected that starting next year, the temporary prioritization rules may be canceled and then the rules of non-discriminatory access will again apply at the Eastern territories, however, revised taking into account the temporary rules. And the priority for transportation will partially return to exporters of raw materials, in particular coal.
However, Russian Railways proposes to exporters of coal from deposits in Kuzbass in 2024 to limit export volumes to 47 million tons. This is 6 million tons less than the standard volume of coal that is exported by rail from Kuzbass annually. In particular, in 2023, the volume of coal exports is expected to reach 53 million tons, as in the past six years (with the exception of transportation in 2022 with the adoption of temporary rules). In 2022, 48 million tons were exported from Kuzbass fields. It is worth noting that representatives of the Kemerovo region, on the contrary, want to increase the volume of coal exports to the east — up to 60 million tons in 2024 — compensating for the reduction in coal exports in 2022. It is not yet known what plan will be approved for the export of coal from the Kemerovo region. In the near future, an indicative schedule for coal exports from the Kemerovo region for 2023-2024 should be published.
At the moment, the volume of coal exports through the eastern and western parts of Russia is comparable. In January-August 2023, 72 million tons of coal were exported through the ports of the Far East, 63 million tons through the European part of the country (ports of the Northwest and Southern Basin). By the end of 2023, 111 million tons of coal are planned to be exported in the eastern direction, but not only from local deposits, which may affect the decline in coal production in Kuzbass.
Fig. 4. Volume of coal exports depending on the direction of transportation, January-August 2023, mln tons
Source: session "Thorny Eastern Polygon: how to accelerate cross-border cooperation"
Export of Russian coal
The volume of Russian coal exports in 2022 amounted to 221.2 million tons. This is 1% less than a year earlier. It is predicted that the same volume will be maintained by the end of 2023. In January-September of this year, Russia exported 135 million tons of coal. The main importers of Russian coal are now China and India.
By the end of 2022, 67.3 million tons of Russian coal were shipped to China. This is 25.6% more than a year earlier. 20.1 million tons were exported to India, which is three times the volume of deliveries in 2021. Thus, these two countries accounted for 40% of Russian coal exports. The Asia-Pacific region remains the main recipient of coal from Russia. Last year, 140 million tons were shipped to the Asia-Pacific countries (compared to 125 million tons in 2021). The share of exports to Asia-Pacific countries increased by 7.3% last year (from 56 to 63.3%).
Fig. 5. The share of Asia-Pacific countries importing Russian coal, 2022, mln tons
Source: Ministry of Energy
The share of key coal importers from Russia does not change significantly from month to month in 2023. Thus, according to CREA, in September of this year, China (45% of Russian coal exports), India (17%), South Korea (12%) were among the top 3 buyers. The cost of coal supplied to China exceeds € 8 billion, to India — over € 3 billion, to South Korea — € 2 billion. Turkey also supplies coal, the volume of which is estimated at almost 2 billion euros.
In total, coal exports to China are still growing. So, in August 2023, a new record was set for the volume of coal shipped to the country — 9.97 million tons. Prior to that, the monthly supply volume did not exceed 9 million tons of coal. The Ministry of Energy expects that at least 85 million tons of coal will be shipped to China from Russia by the end of the year, which is 26.3% more than in 2022. It is also expected that the volume of Russian coal supplies to China can be increased to 100 million tons of product per year.
Fig. 6. Coal exports from Russia to China by month, million tons (without data for April and June 2023)
Source: Reuters, Kommersant, China Customs
According to the General Customs Administration of the People's Republic of China, in the first half of 2023, Russia became the second main supplier of coking coal to China. In just six months, China received 45.22 million tons of coking coal from various exporting countries (+73.7%). At an average price of $ 190/ton, which is almost a third lower than in the first half of 2022. Mongolia supplied 49% of coking coal to China, and Russia supplied 29%. Russia has supplied China with 13.1 million tons of metallurgical coal.
According to the Ministry of Energy of the Russian Federation, it is expected that Russia can increase coal exports to India to 40 million tons. In 2022, Russia exported 20.1 million tons of coal, and also became India's fifth largest trading partner (after China, the United States, the United Arab Emirates, Saudi Arabia). In 2021, Russia signed the top twenty largest trading partners. Thus, in the coming years, we can expect at least a twofold increase in the volume of Russian coal supplies to India. If the countries strengthen cooperation, India has a chance to become the main importer of Russian coal. China will be able to overtake in terms of purchases if, on the contrary, China reduces the volume of coal purchased from Russia in the next decade. There are two key reasons for this:
- Russia will continue to reduce the discount provided, in particular, to China for the purchase of Russian raw materials
- China will reduce the use of coal, adhering to the concept of a "green transition"
However, despite the prospects for the development of India as a market for Russian coal, the dynamics does not always remain positive from month to month. In the first eight months of 2023, Russia increased the supply of coking coal to India and increased its share of supplies in the import of this coal to India by 6.2% (from 5% to 11.2%). From January to August, Russia shipped 4.3 million tons of coking coal to the country, according to the Indian Ministry of Trade and Industry.
However, in September, India has already reduced the supply of this type of coal not only from Russia, but also from all exporting countries. The level of coking coal purchases by India decreased by 8% (relative to August) and by 11% (relative to September 2022). India has increased the purchase of thermal coal (+24% — up to 15 million tons), but Russia is not a key supplier of energy coal to the country, unlike South Africa and Indonesia, which respectively increased coal supplies to India in September this year. According to Coalmint, in April-September 2023, India increased domestic coal production to 428.3 million tons (+12%). Due to increased coal production, as well as increased coal imports during 2023, India has sufficient coal reserves to temporarily reduce its purchase before the rainy season.
Fig. 7. Growth in the volume of coke supplies from Russia to India, million tons
Source: Indian Ministry of Commerce and Industry
Despite the decrease in exports of metallurgical coal to India, the volume of coal shipped in the first eight months of 2023 exceeds almost 3.5 times the volume of coking coal supplies to India for the whole of 2021 — 1.3 million tons versus 4.3 million tons. Last year, India increased the volume of purchases of Russian metallurgical coal in the autumn months. As for energy coal, Russia exported 8.43 million tons to India in 2022 against 2.34 million tons a year earlier, according to Coalmint.
Figure 8. Russian coal supplies to the Mediterranean countries, January-August 2022-2023, thousand tons
Source: Kpler
In 2023, Russia is increasing the volume of coal supplies to Turkey. Thus, in the period from January to August, Russia became the largest supplier of this raw material to Turkey — volumes amounted to 14.6 million tons, which is 55% more than in the same period last year. Supplies to Egypt have also increased — in the same eight months of 2023, 464 thousand tons of coal were sent to the country, which is 60% more than in January-August 2022. By increasing the volume of supplies to Egypt and Turkey, Russia is also able to increase the total volume of coal exports to the Mediterranean countries, despite a decrease in shipments to Morocco. According to Kpler, in the first eight months of this year, Russia shipped 945 thousand tons to Morocco, which is 58% less than last year's figures for the same period (2.25 million tons).
Now it is profitable for Turkey to purchase Russian coal, as it is cheaper than coal from Colombia, which the country is used to buying. In addition, Russian coal is cheaper than Russian gas, the purchase of which Turkey reduced in the first eight months of this year. If in January-August 2022 Russia supplied Turkey with 21.5 billion cubic meters of gas, then in the same period of 2023 — 10 billion cubic meters. Thus, Turkey compensates for the reduction in gas imports with increased coal purchases.
Also in 2023, Russia resumed coal supplies to Argentina, Mexico, and Bangladesh after a break in 2022. In addition, the volume of deliveries has been increased this year. In the first nine months of the year, 314 thousand tons of coal were exported to Mexico, 73 thousand tons to Argentina, 48 thousand tons to Bangladesh. Kpler cites the data. Before that, a large volume of coal supplies was observed from Russia to Mexico in 2019 — about 1 million tons of coal were shipped. Over the next two years, the volume of Russian coal exports did not exceed 200 thousand tons.
Fig. 9. The volume of Russian coal exports to Argentina, Mexico and Bangladesh, thousand tons
In 2023, the Russian coal industry is striving for development: improving the technical and technological equipment of companies, developing new deposits, as well as establishing supplies along logistics routes. Therefore, as noted by the head of the Ministry of Energy Nikolai Shulginov, coal mining is increasingly shifting to deposits in the eastern part of Russia. Russia also plans to develop coal deposits in the Arctic. In 2025, Russia plans to produce 15.9 million tons of coal in the Arctic, which is 2.5 times more than the volume of production last year.
At the same time, it is not worth waiting for a strong increase in the level of coal production by enterprises this year, since updated logistics continues to be formed this year. It makes no sense for domestic companies to increase production volumes if it is impossible to significantly increase exports. According to Deputy Minister of Energy Sergey Mochalnikov, the demand for Russian coal in 2023 is higher than the possibility of its transportation. In this regard, for the development of the coal industry in the country, it is important that the deadlines for commissioning the BAM-1 and BAM-2 facilities are respected. In addition, coal companies need to know railway tariffs, as well as the cost of transshipment of goods at ports and freight, therefore, pricing on these transport routes should be predictable, transparent and relatively stable.
In 2024, demand for coal will remain at the level of this year, so Russia can expect an increase in both coal production and exports. Russia will continue to increase the volume of coal supplies to the Asia-Pacific countries. According to Alexander Novak, Deputy Prime Minister of the Russian Federation, by 2030, coal exports to the Asia-Pacific region will increase 1.5-2 times.
