Russian coal inventories held in the Kuzbass region have swelled by 17% on the year to an average of 21m tonnes so far in 2023 as war-related logistics constraints, embargos and low prices hamper exports.
Stocks in Russia’s main coal-mining region in southwest Siberia were seen this week at around 21m tonnes, compared with 18.8m tonnes at the same time last year and just 16m tonnes in September 2020, according to DBX estimates.
At the same time, Russian thermal coal exports were projected to have dropped 2.5% on the year in January-September to 92.8m tonnes, the firm’s data showed.
“There have been cuts to rail plans of up to 70% to some westward destinations,” said a Russian coal trader.
This was due to increased utilisation of the rail network for transportation of military vehicles and equipment for Russia’s ongoing war on Ukraine, coupled with a cut in railings to eastern European destinations and for exports via Baltic ports, he said.
Rail restrictions
While Russian coal has been banned from entering Europe since August last year, Kazakh coal is still permitted, via Russia rail networks and ports.
But in a document seen by Montel, state-owned operator Russian Railways (RZD) was shown to have even restricted the transport of coal from Kazakhstan along the network, without giving a clear reason.
A Polish coal trader said he was not surprised by the increase in stocks.
“An embargo on Russian coal exists all over Europe, so reduced railings to western destinations are obvious,” he said, adding: “I have not heard of any European country breaking the ban.”
Montel contacted RZD for comment but had yet to receive a response.
Unappealing prices
At the same time, Russian producers were reluctant to sell at currently low prices to their remaining customer base, said DBX’s CEO Alex Claude.
“Russian mines are holding back from selling at low prices of around USD 100 FOB [free-on-board],” he said.
“They have had some amazing years and are cash-rich at the moment, so there is no need to sell at a loss,” he added.
Europe’s benchmark front-month API 2 coal contract – which reflects coal including delivery costs to northwest Europe – was seen last at around USD 125/t, less than half the USD 300/t seen at the same time last year, Ice Futures data showed.
Because Russia has haemorrhaged clients profusely since it invaded Ukraine, its producers generally have to offer cargoes at a steep discount to the prevailing market price.