Thermal coal 'thought of the week'

February 9, 2017

The research team takes a closer look at Russian coal exports


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  • This week we would like to shift our focus to Russian Coal exports which influence supplies over both the Atlantic and Pacific basins.
  • Russia coal mining industry is vast and most of the Russian thermal coal mines are situated in Pechorsky (1), Kuznetsky (2), Kansk-Achinsky (3) and Yakutsky (4) basins. The basin which has the most direct influence over the price formation on the API2 market is Pechorsky (1). 
  • The climatic conditions in NW Russia during the month of February are anticipated to be significantly colder than average as indicated by the NOAA ground temperature map. The other coal mining basins (2) – (4) are also forecasted to experience colder than average ground temperatures. 
  • Interestingly, these colder than average conditions for all the selected regions are anticipated to persist into March. With colder than average ground temperatures potentially adversely affecting mining capacity utilization levels, this would certainly be worth a thought  about it. This is even more so as we have highlighted some supply tightness in the Pacific basin in the previous note.
  • In order to shed more light into the above, we calculated the percentage of Russian coal exports over the amount of coal produced. The motivation is to determine if Russian miners are exporting much more/less than they produce. 
  • The latest January figures suggests that while there is an uptick in this percentage of exports out of production figures (~70%). At this level, the Russians certainly has more room for exports if needed. 
  • In other words, it seems unlikely for the weather conditions to significantly impact export figures since they are already producing more than they are exporting. This leaves to the next natural question which would be what drives their incentive to export more or less coal.
  • One factor is the relationship between coal and oil prices on the international market. We discussed this relationship in detail in one of our analytical pieces last year.
  • The other factor we can think of is the domestic consumption of coal which is strongly seasonal and dependent on weather. As suggested earlier, ground temperatures are likely to be lower in Feb-March which bodes well for the consumption of thermal coal. Our forecast is for 8.75% YoY increase in domestic demand for Q1. The result is displayed on Figure 2b.
  • Provided our expectations materialize, the exports from Russia are likely to disappoint in the short-term. This will be welcome development for those who are contemplating with the idea of going long this market