20 February 2020
Ararat Park Hyatt Moscow

Argus Russian Coal Market

Coal supplies to Asia-Pacific face difficulties

Russian coal exports through far eastern ports are limited in December amid high stocks in sea terminals. And worsened weather hindered coal loading on vessels, market participants said.

Some suppliers to far eastern ports face delivery delays of several days compared with the normal rate, they said. "Some of our railcars remained idling on the way to far eastern ports. Russian state-owned operator RZD didn't approve our application for shipments to Vanino in December. Additional applications could be sent by 15 December but the situation is unlikely to improve," a supplier said. The source said Vanino port's terminals remained highly loaded on the back of limited coal sales. And there is a large number of idled loaded trains on the way to the Vostochnaya Stevedoring station in the Vostochny port, but the situation could improve by the middle of this month.

"Sea storms hindered vessels in Nakhodka and Posyet ports — most of them are idled on the approaches to ports," the mining firm added.

RZD imposed official limitations on coal supplies to the far eastern ports of Nakhodka and Posyet on 2-12 December. But delays have not led to significant disruption of supplies under the actual contracts with customers, and suppliers hope to catch up with delayed volumes later, market participants said.

RZD cut exporters applications for coal exports to far eastern ports by over 22pc this month, as of 9 December. "But spot sales could be limited in December as sellers are focused on sales in the first quarter of 2020. And China stopped all imports last month," a Kuzbass-based supplier said. Coal deliveries to far eastern ports are usually hampered in January-February amid long winter holidays and colder weather.

Suppliers also suffer from limited shipments through overland border crossings with China in December. RZD banned all coal supplies to the Grodekovo-Suifenhe border crossing since 20 November and may stay limited until the end of this month. But the Kamyshovaya-Hunchun overland border crossing started taking coal again a few days ago after almost a month of being stopped. Jams at Russian-Chinese overland border crossings traditionally take place at the end of the year when Chinese coal imports reach their annual limit.

Exports to Asia started to fall…

During the first 12 days of December, coal exports to eastern ports were down by 2.9pc on the year at 208,000 t/d, according to RZD. The railway operator expects monthly shipments to be higher on the year if bad weather does not cause new disruptions in ports.

"The largest amount of idling loaded trains — 103 units — is on the far eastern railway," RZD said.

But Russian coal exports through far eastern ports rose by almost 10pc on the month in November and by 22pc on the year to 7.69mn t, rail data show. Dispatches to the largest ports in the region — Vostochny and Vanino — continued rising in November in line with demand recovering in Asia-Pacific ahead of the new heating season. Deliveries to Vostochny port were up by 13pc on the month and 22pc on the year to 3.23mn t in November as the port continued increasing coal handling after it commissioned new capacities at its PPK-3 terminal in mid-2019. Shipments to Vanino reached 2.27mn t in November, up from 1.89mn t a year ago and 2.12mn t in October.

… while shipments to Europe rebound

During the first 12 days of December, coal dispatches for exports through northwestern ports were up by 25pc on the year at 164,000 t/d, as RZD provided a discount to railway transportations tariffs, the operator said. There were 42 loaded trains idling on the Oktyabrksaya railway by the end of the week. And coal dispatches for exports through southern ports were up by 90pc on the year at 61,000 t/d in the first 12 days of December. There were 57 loaded trains idling on the route to southern ports at the start of December, RZD said.

RZD approved over 91pc of applications for coal transportations to southern ports and almost 88pc to northwestern ports — at 1.87mn t and 4.31mn t for December, respectively. This means shipments in December could be higher than November despite limited navigation at some freezing Russian ports.

"There are some non-critical delays in coal loading on vessels in Russia's Baltic ports because of the windy weather," one mining firm said. Railways leading to northwestern ports have enough free capacities to increase coal significantly at the western direction, market participants said.

Exports to Russia's northwestern ports in November fell by around 11pc from October and 12pc on the year to 4.06mn t, railway data show. The decline was mainly due to dispatches to Murmansk being cut by 11pc on the month and on the year to 1.22mn t, and to Ust-Luga — down by 12pc on the month and 10pc on the year to 1.96mn t.

Demand for shipments to Europe through Latvian ports also continued to fall. Russian coal exporters dispatched 1mn t last month, down from 1.16mn t in October and 1.7mn t a year ago. Sibanthracite Group was understood to switch from handling coal in Ventspils to alternative ports. As a result, shipments to Ventsils fell to 70,000t in November from 150,000t in October and 540,000t a year earlier.

Coal shipments to Russian southern ports were up by almost 57pc on the year but fell by 8pc on the month to 1.4mn t in November, rail data show. The month-on-month decline was explained by weaker navigation in Azov Sea ports, such as Azov, Yeysk and Rostov. Shipments to the Black Sea port of Temryuk, which handles coal mainly from SDS-Ugol, also fell to 93,000t in November from 166,000t in October.

One of the largest Russian coal mining firms — Kuzbassrazrezugol — remains the only supplier to Tuapse port in November, while other exporters have focused on alternative southern ports since July and August.

Transportations to Tuapse reached 313,000t last month, down by 6pc on the month but up by 25pc on the year.

Shipments to operator Oteko's coal terminal at Taman reached almost 200,000t in November — flat on the month and up from 16,000t a year ago. All coal is supplied to the terminal by Sibanthracite Group.

Overland shipments to Ukraine reached 780,000t in November, up from 640,000t in October, but almost 17pc lower than a year ago. Some volume of Russian coal could be supplied to Ukraine through Belarus. Deliveries to Belarus in November fell by 53pc on the month and 9pc on the year to 210,000t.

Deliveries to Poland fell to 780,000t in November, compared with 840,000t in October and 1.34mn t a year earlier.

Restrictions for coal deliveries to Slovakia's steelmaker US Steel Kosice through the Uzhgorod-Matevtse border crossing between Ukraine and Slovakia were imposed again from 3-25 December. Suppliers previously experienced limited shipments on this route in November.

Rail tariffs to rise next year

Railway tariffs are expected to increase by 3.5pc in 2020, according to preliminary instruction sent by Russia's federal anti-monopoly service.

The size of the increase was calculated as the amount of inflation minus 0.1 percentage point. The tariff was expected to increase by 3.6pc from the current level. Some market participants noted the 3.5pc tariff rise should be fixed for the first half of 2020 but could be revised up later.

The rail tariff for supplies from Kuzbass-based coal mines to northwestern and far eastern ports with the implementation of indexation should increase by around 75-90¢/t.