Russia could ship more coking coal to China, India amid mounting sanctions

A trading source in Shanghai said that, with the European Union banning imports of coal from Russia, coking coal and pulverized coal injection-grade materials will likely flow into countries that are friendlier with Russia, such as China and India.

Russia exported 32 million tonnes of coking coal and PCI materials in 2021, up by 26% year on year. Russia accounts for about 30% of the coking coal requirements of the European Union, Japan, and South Korea.

India imported 1.15 million tonnes of coking coal from Russia in 2021, accounting for 2% of India’s total imports and 3.6% of Russia’s coking coal exports. India imported 56.27 million tonnes of coking coal in 2021.

India plans to double its imports of Russian coking coal, steel minister Ramchandra Prasad Singh said on March 27.

China imported 1.91 million tonnes of coking coal from Russia in the first two months of 2022, up by 126% from the same period last year. In 2021, China imported 10.76 million tonnes of coking coal from Russia, China’s second-largest supplier. Mongolia was the largest supplier of coal to China, the country’s customs data showed.

Russia plans to expand its coal exports to China to 100 million tonnes in three to five years from 52 million tonnes in 2021, Sergei Mocharynikov, an official of the country’s energy ministry, told Russian media.

“But Russian coking coal and PCI prices need to be more competitive compared with Chinese domestic materials of similar types so that it can attract buying interest,” the trading source in Shanghai said. “Also, China alone cannot absorb large extra volumes of Russian coking coal.”

Payments issue to be solved

Many market sources in China said they were taking a wait-and-see stance and did not consider procuring Russian coking coal or PCI once the sanctions were in place, especially with some Russian financial institutions being removed from the Swift banking community.

But there have still been trades of seaborne Russian coking coal and PCI concluded, with payment done by letters of credit, sources heard.

A second trader source in Shanghai said that recent trades had been concluded by telecommunications transfer or documents against payment, and some Russian coal miners accepted payment in Chinese yuan.

“But telecommunications transfer and documents against payment are riskier compared with letter of credit,” he added. “In the longer term, more Russian coal miners will accept Chinese yuan payment.”

A steel mill source in eastern China said that some Chinese are still issuing letters of credit, but they are scrutinizing each application when it comes to any trades related to Russia.

A steel mill source in India said that payment will not be a big issue unless the country imposes sanctions on Russia, because the Indian government is working on enabling ruble-rupee transactions.

He was referring to an Indian rupee-ruble trade mechanism that the president of the Federation of Indian Export Organizations said could be established soon.