Export prices for Russian thermal coal in Europe have almost doubled since May, reaching $ 137 per tonne. Rising gas prices are pushing quotes upward, making coal again an attractive fuel for some European power plants. The shortage of energy coals in Asia also contributes to the rise in world prices: Indonesia reduces exports due to quarantines, and South Africa due to unrest. The domestic price of coal in Russia is also growing, but the coal industry, unlike metallurgists, is likely to avoid an increase in the tax burden.
The price of thermal coal in Europe has received strong support from the rising price of gas, whose quotes have been consistently hitting historical records in recent weeks. According to the agency “Metal Expert”, world coal prices have increased by more than 60% since May. In the western direction, the export price for Russian coal based on 6,000 kcal / kg increased from $ 74 in May to $ 137 on a FOB basis in the Baltic ports, in the east – from $ 96 to $ 146 on a FOB basis in the ports of the Far East. In the domestic market of the country, grade D coal, which is the main one for the energy sector, has risen in price from 2.1 thousand to 3.15 thousand rubles. per ton.
Platts writes that lignite was the main fuel for generation in Germany in early August, with production from renewable sources plummeting due to weaker-than-normal winds. The agency notes that the margin for coal-fired generation was € 12.24 per MWh as of 6 August, compared to the deeply negative margin for gas-fired generation (minus € 13.77 MWh). Platts believes that under current conditions, coal will displace gas from use in generation where it is technologically possible.
According to the Central Dispatch Office of the Fuel and Energy Complex, in January-June, coal production increased by 8.8% compared to the same period last year, to 212.3 million tons. This is below the level of the pre-pandemic 2019, when 215 million tons were produced in the first half of the year, writes Argus. Steam coal production increased by 9.5% to 164.9 million tonnes, which is also below the 2019 level. But the excellent pricing environment has allowed Russian coal miners to make record profits. According to Rosstat, in the first five months of 2021, the total profit of coal companies increased to 135.4 billion rubles, losses decreased to 8.6 billion rubles. This is comparable to the result for the entire 2019, when coal miners’ profits amounted to RUB 138.2 billion, losses – RUB 16.1 billion.
Unlike metallurgists, for whom the government has introduced export duties and is going to raise the mineral extraction tax, the coal industry has not yet been affected by such restrictions. And although prices on the domestic market have risen dangerously in a number of cases (see page 7), so far the FAS and the Ministry of Energy are only proposing to use the exchange trading mechanism, through which 10% of domestic coal sales will pass. According to a Kommersant source among mining and metallurgical companies, the idea of export duties on coal is not supported by the government due to the high dependence of coal miners’ revenues and tax payments on exports. In addition, the profitability of Russian Railways’ investments in the development of the Eastern landfill depends on the export of coal. The Ministry of Finance told Kommersant that the ministry is not considering increasing the tax burden on coal companies.
The shortage of thermal coal has increased in Asia as well, says Ayrat Khalikov, executive director of Gazprombank’s center for economic forecasting. This was due to a decrease in exports from Indonesia due to quarantine restrictions and heavy rains, as well as due to the suspension of exports from South Africa amid the unrest. The expert expects high demand in the fall, as energy companies will have to build up coal reserves ahead of the heating season amid a sharp rise in gas prices.
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