Ways out for coal
Сoal exports are still profitable via all basins of Russia but the level of profitability varies. Amid insufficient capacity of the railway infrastructure providing the link with the Far East, exporters are switching to the South and the Baltic region. The task of developing the Black Sea basin infrastructure was set by the President of Russia in his recent Address to the Federal Assembly.
According to an analytical review of IA InfoLine, coal exports are still profitable via all sea basins of Russia but the level of profitability varies. Thus, the profitability (the margin to FOB price ratio) of coal companies exporting their products via the port of Ust-Luga, was 3.8%-6.7% in January 2023 , depending on the gondola cars’ axle load; via Murmansk - 8.1-10.4%, via Taman - 12.5%-14.2%. Along with the exports via the ports of the Far East that ensures export efficiency for coal companies even amid the falling prices. Meanwhile, the highest profitability is shown by exports from the ports of the Far East to India and China (20%-30% depending on the terminal and direction).
Nevertheless, the acute shortage of capacity at the railway approaches to the Far East ports makes it impossible to use their advantages in full. Notably, shipments of export coal from the Kemerovo Region decreased by 3.1 million tonnes, to 53 million tonnes in 2022, due to the limited capacity of railways running to the Far East ports and the priority given to transportation of containers.
In this context, the increase of coal shipments from the ports in the South and in the North-West region allows for minimization of coal production decline in Kuzbass and in the European part of Russia. Apart from the geography, the profitability depends on the size of ships accepted in the ports. In the port of Taman coal can be loaded on Capesize bulkers with a deadweight of 220,000 tonnes. According to InfoLine, this contributes a lot to the economy of cargo transportation via Taman thanks to the fright rates, especially when it comes to exports to the Middle East and to the North Africa.
Aleksey Kalachev, analyst of Finam, says that transportation by alternative routes – via the Southern Polygon and via the North-West – “let unload the railways of the Eastern Polygon which are operating at the limit of their capacity amid the changing geography of Russia’s exports”.
Meanwhile, the full-scale use of the southern direction faces the same problem - insufficient capacity of the railway approaches. In this regard, it is interesting that in his recent Address to the Federal Assembly, the President of Russia emphasized the need to develop BAM, Trannsib and the ports of the Azov-Black Sea basin.
“Our plans include the accelerated modernization of the eastward railways, the Transsib and the BAM, and building up the capacity of the Northern Sea Route. This means not only additional cargo traffic, but also a basis for addressing national tasks on the development of Siberia, the Arctic and the Far East,” said the President.
Mikhail Burmistrov, General Director of INFOLine-Analytics, comments: “Specifically, with the current prices for thermal coal in export markets, its handling remains profitable on all routes, either northwestern, southern or eastern. Major parameters of profitability are determined by the distance from the port of loading to the country of destination, but related variables - the speed of cargo handling, freight rates, the type of gondola cars and other factors - can significantly affect the margin of coal supplies. Judging by the handling volumes of 2022, coal exporters opt for a specific logistics route being guided by a combination of two factors: potential profitability and railway capacity.”
It should be noted that China, S. Korea, India and countries of the Northern Africa became the key importers of Russian coal after an embargo on the commodity was introduced in Europe.
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