Global coal prices began to decline in 2023, pushing exporters to redistribute trade flows both in the external market between recipients and within the country between the main export routes. The shortage of railway carrying capacity is observed in all marginal export directions.
According to the Association of Commercial Sea Ports (ASOP), 88.9 million tonnes of coal (+14.4%) were exported in January-May 2023 through Russian seaports. Coal exports to the East increased by 9.4% to 45.1 million tonnes in January-May 2023 compared to the same period last year, the Russian Railways (RZD) statistics (available at PortNews) showed.
The largest increase was seen last year in the Southern basin (+20% compared to 2021) thanks to exports handled at the dry bulk terminal in the Port of Taman (+33%). The volume of coal shipped via the ports of the Baltic basin decreased by almost 10%. Murmansk also showed a 3-percent decline. Such results are based on fundamental factors: due to a critical shortage of carrying capacity of the Eastern Railway Range and Western sanctions, coal traffic through the southern ports saves on freight costs compared to the ports of the North-West.
Igor Levitin, Assistant to the President of the Russian Federation, Secretary of the State Council, recently spoke about the need to develop the northwestern and southern directions during the Siberian Transport Forum. He stressed that the eastern direction is too busy, and this load will continue, especially since the development of the eastern corridor is 33-80% more expensive than others.
“The Northern Sea Route and the North-South, I would say that these are two priority tasks for the next ten years. The eastern operating domain of RZD will take its 180 million [tonnes] anyway. We want 220, but every million tonne + to 180 would cost RUB 30 billion. Let's assume that the North-South costs 1 million to 6 billion rubles, and the Northern Sea Route will approximately cost about 20 billion rubles. Now we need to move on to mathematics and consider which domain to choose, and how much it would cost,” Mr. Levitin was quoted as saying.
Elena Zotov, a leading analyst at the Institute for the Development of Technologies in the Fuel and Energy Complex (IRTTEK) agrees that it is necessary to carefully weigh the cost of expanding logistics routes. She says, investment decisions, especially in coal logistics, must be made with an eye on the congestion of the Eastern operating domain, diversification of routes is also necessary. “When answering the question of which railway domain should be expanded in the first place, it is also necessary to evaluate cargo flows. Where exporters are already transporting coal, which one is Russian or, including Kazakhstan, what port facilities are available to meet their needs,” explains Elena Zotov.
IRTTEK also emphasizes that the main reason for the coal prices adjustment. An inevitable rebound after the abnormally high prices of 2022, when export prices for thermal coal exported from Russia rose to $300 and more. In the medium term, despite the latest adjustment, coal prices will remain above average multi-year levels. “Both now and in the long term, coal supplies to the Asia-Pacific region will be profitable. Especially since global coal prices are cyclical, falling prices are inevitably followed by their growth,” said Sergey Vorobyov, head of the Expert Council, director of the Institute for the Development of Technologies in the Fuel and Energy Complex.
At the same time, current coal prices, firstly, are volatile, and secondly, they are not the only factor affecting the profitability of coal supplies via a particular export route. As Alexander Grigoriev, Deputy General Director IPEM commented to PortNews, in the countries of the "Big" Asia-Pacific region, which includes India and Pakistan, coal consumption will increase, even though a significant part of local demand will be met by imports.
“The advantages of Russian suppliers there are not limited to the quality of coal and its prime cost. Distances between Russian Far Eastern ports and ports of coal-importing countries are in almost all cases shorter than those of Australian competitors. The situation is similar with regard to our Black Sea ports and the ports of Pakistan and the western coast of India,” the expert says.
When assessing the effectiveness of export routes, it is necessary to take into account not only the cost of the coal itself, but also the cost
of freight and the ability to accommodate large-tonnage vessels. For example, throughout 2023, spot rates on Capesize bulk carriers fell faster than rates on smaller bulk carriers. Given the observed trend towards falling freight rates for bulk carriers, deep sea routes using large-tonnage vessels are becoming more and more attractive. According to our sources in the market, the best long-term prospects for coal exports are observed in those ports that can ensure fast and regular loading of large-capacity fleets.
Experts believe that growth in demand for Russian coal in Asia is expected, which will lead to a cyclical increase in prices for it.
“Long-term growth in demand for Russian coal in the global market will continue to support the growth of exports handling,” continues Sergey Vorobyov from IRTTEK.
“RZD urgently needs to invest in expanding the capacity of the rail network in all directions: in the East, the Baltic, the Arctic, and especially in the South. The southern direction is geographically advantageous for coal miners, as it provides effective access by the deep-water fleet to the promising markets of Asia and the Asia-Pacific region. In terms of profitability this route is close to the Far East. Despite this, the volume of coal exports through the South has decreased slightly this year, but due to the insufficient capacity of the railways,” the expert said.
Sabrina Mukfi.