Coal flows to the South

Redirection of coal exports requires revision of logistic chains in the country. In the current situation, ports compete for the capacity of railways striving to continue shipments to available markets.

In the new geopolitical situation, exports of Russian coal undergo structural transformation. The market participants expect the shipments to shift from Europe to the East with China, India and Turkey to be the key importers. The coal shift to Asia is attributed not only to import restrictions: it is the Asia Pacific Region that accounts for the main growth of the global demand for coal. 

In the 8-month period of 2022, India increased imports of Russian coal 2.2 times to 4.37 million tonnes, according to Nariman Taiketayev, Director of Corporate Ratings Group at NCR. “There is still a potential for further building up of Russian coal companies’ share in Indian imports (currently ‒ about 4%) taking into account high quality of Russian coal and considerable discounts versus the offer of suppliers from other countries,” he said.

Exports pivot entails the revision of internal logistics. Coal is primarily exported by sea with the shipment ports concentrated mainly in three regions: Far East, South and North-West. Long-lasting problems of coal delivery to ports are getting increasingly urgent.

Narrow ways to the East

In the Far East, stevedores’ facilities do not get sufficient amount of coal. In 2021, throughput capacity of the Eastern Operating Domain was 144 million tonnes with the demand as high as 284 million tonnes per year. Thus, the railway capacity deficit is estimated at 140 million tonnes. When speaking at the Eastern Economic Forum, Sergey Tsivilyov, Governor of the Kemerovo Region, said that Kuzbass coal companies have 53 million tonnes of coal to be transported in (with an additional permit for 5 million tonnes). “By the end of the year, we will carry much less than in the previous one. The impact of embargo is less than that non-construction of the Eastern Operating Domain,” said Sergey Tsivilyov. According to the market players, excess of dedicated coal handling facilities in the Far East ports is estimated at over 50 million tonnes per year. 

“In 2022, eastward flows of export coal were hindered by both insufficient capacity of railways and the change of coal loading priorities. In March, they suspended the rule of non-discriminatory access which used to set quotas for shipments of coal from Kuzbass, Khakasia and other coal regions,” says Mikhail Vedishchev, senior analyst of Gazprombank’s Department for Strategic Development and Economic Forecast.

According to the presentation of Irina Olkhovskaya, UMMC Director for Port and Rail Projects, out of 78 million tonnes of coal supplied to the APR countries in January-July, 65 million tonnes were shipped via ports and border crossings of the Far East, the remaining – via the North-West and South of Russia.

The South can handled more

As Russian Railways told IAA PortNews, average travel time from the station of loading to the station of destination at southern ports is 7-10 days (about 4,800 km), to the north-western ports – 7-11 days (about 4,900 km). Together, ports operating in the South and in the North-West could have exported about 80 million tonnes in 8 months if they were fully loaded. However, they shipped only 62 million tonnes, says Mikhail Vedishchev.

In January-August 2022, loading of coal bound for the ports of the Azov-Black Sea Basin rose by 26.8%, year-on-year, to 23.7 million tonnes, according to Nariman Taiketayev. The growth was driven by increased handling at the only dedicated coal port in the South of Russia – dry bulk terminal in Taman, says Mikhail Vedishchev. Over the 8-month period, the terminal exported 20 million tonnes of coal versus 14 million tonnes in 2021. The expert believes that the terminal in Taman can export 2-2.5 times more versus its actual handling results. 

According to the calculations of Russian Railways based on export prospects, the approaches to the ports of the Azov-Black Sea Basin should have a capacity of 131 million tonnes by 2025 and 152 million tonnes by 2030. In 2021, the capacity of railways to the southern ports was as high as 125.1 million tonnes (+50.1 million tonnes vs that of 2015). With the implementation of the current projects the railway capacity is to grow by 30 million tonnes by 2024.

Some sources interviewed by PortNews are not that positive. Actual loading of export cargo on Russian Railways’ networks running to the southern ports totaled 92.5 million tonnes in 2021 ‒ 74% of the declared capacity, say IAA PortNews sources. Russian Railways’ capacity is not likely to be sufficient in 2025-2030 – back in 2021 stevedores said that Russian Railways approved less than 50% of exporters’ requests for transportation. The port industry sources say that the demand has increased this year while the share of approved requests has decreased. In summer, Russian Railways approved slightly over one third of the requests for cargo transportation to the southern ports, according to the source. Obviously, that should be attributed to the increase of passenger transportation in the summer season amid the closed air connection with Russia’s south.

Financial issues

“The key problem of shifting coal to the European ports is not the capacity of terminal facilities but profitability of supply to the Asian markets taking into account the growth railway tariffs and freight rates on such a long leg,” Mikhail Vedishchev believes. “Russian exporters’ freight costs have raised critically. In such conditions, shipment of 150,000-200,000-tonne batches by Capesize ships from Taman to India, China and other APR countries let reduce freight costs by over a half versus shipments by Kamsarmax and Baby-cape vessels from the Baltic ports,” explain a source in the market.  

As of today, thermal coal futures in the Asian market are about $430 per tonne, in the European market – about $330 per tonne. Russian coal FOB prices range between $150 and $180 per tonne depending on the calorific value and the port of shipment, according to NCR. 

“Taking into account low cost value (from about $14 per tonne), railway tariff for coal transportation ($45-60 per tonne depending on direction) and freight rates ($15-20 per tonne if bound for Asia and $40-60 per tonne if bound for South), coal supplies are still profitable for Russian exporters,” comments Nariman Taiketayev. 

When coal is delivered to the ports of the North-West Region, expenses for transportation by railway make about 38-45% of FOB prices in the ports of the Baltic Basin, says the expert. According to media reports, the government is discussing introduction of discounts for railway transportation of coal to the North-West ports which can boost competition for cargo with southern ports.

“Discounts for cargo transportation to the North-West ports will contribute a lot to recovery of their loading since the bulk of coal handled there will be exported to the markets located far from the Baltic Sea with high freight expenses. Small ports in the South will not suffer a lot as a large share of coal handled there goes to Turkey and non-EU Balkan states. The port of Taman is to face competition with other ports able to handle ships of over 100,000-dwt, namely the port of Murmansk and Ust-Luga. However, with their current loading, north-western ports can take over only relatively small volumes of coal,” summarized Mikhail Vedishchev.

By Sofia Vinarova

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