Export rail tariff to rise next year

The cost of rail delivery of Russian coal for export may rise by 6pc-11pc next year from the current level because of a planned rail tariff increase.

Rail tariffs for cargo transportation, including coal, may for increase by 3.3pc from January. The basic indexation is linked to Russia's annual inflation and its rate is preliminary as final forecasts for the rate of inflation in Russia are yet to be announced, state-owned rail operator RZD says. It is not yet clear if the new tariff will come into effect on 1 January because it must first be approved by federal anti-monopoly service the FAS.

Besides this tariff hike, the FAS agreed to keep an additional 8pc surcharge for export of all cargoes, excluding aluminum and petroleum cargoes. The 8pc surcharge has already taken effect this year for exports of coking coal and anthracite and there will be no change for suppliers of these coal types next year. But exporters of thermal coal will face the additional charge, as the 8pc indexation was not included for thermal coal exports this year.

In addition to indexation of cargo transportation, tariffs for the movement of empty open-top railcars will rise by 6pc in January, RZD says. Such measures should encourage suppliers to load railcars with cargoes when sending them back after unloading.

Rail tariff indexations are not yet finalised and could be revised depending on market conditions. If new rail tariffs are approved, the average rail tariff for thermal coal exports could increase by around 11pc or about Rbs140/t ($2.14/t) from the current level in 2019. The expected growth might limit profitability of coal exports from Russia if export prices for coal continue to fall, market participants say.

An increase of rail tariff is unlikely to discourage coal exports from Russia, as producers don't have any options to sell surplus of material in Russia, while coal output is increasing. "But if prices on a fob Baltic basis continue falling below $70/t fob, this may seriously reflect on marginality of production costs and could led to decrease of exports", a miner said.

Find more news, price information and market analysis on Russian coal export in Argus Russian Coal report.