Give the price of coal

Contrary to usual practice, prices for thermal coal in Russia did not decrease after the end of the heating season. The rise in world prices stimulates coal miners to export all free volumes for export, the profitability of which has grown two to three times compared to last year. As a result, large energy companies are already facing problems when purchasing coal and complaining about high prices, which are difficult for them to shift into electricity tariffs. According to analysts, coal prices may normalize only at the end of the year, that is, after the start of the next heating season.

The active export of Russian thermal coal in the context of high prices has led to an unusual situation in the domestic market. Prices for grade D coal, which is the main one for the Russian energy sector, have recovered to the level of 2019 and are practically not decreasing, despite the end of the heating season, follows from the May presentation of the Argus price agency on the domestic market.

This year, coal producers of this brand introduced seasonal discounts, which were traditionally offered at the end of winter or early spring, unusually late – in May. In addition, their size was limited by the reluctance of suppliers to shock consumers with a sharp rise in prices in August, when preparations for the new heating season begin. If the current trends in the coal market continue, the situation in the fall of 2018 may be repeated, when prices were at their peak values ​​of 1,450-1500 rubles. per ton FCA Kuzbass excluding VAT, writes Argus with reference to the opinion of coal traders. Now the price on the domestic market is about 1100 rubles. per ton.

Coal companies are trying to take advantage of market conditions and increase production. Kuzbass Fuel Company plans this year to increase coal production by 36% by 2020, up to 12.75 million tons. SUEK reported that it increased production in the first quarter by 5%, to 29.1 million tons, and exports – by 11%, to 13.9 million tons.

The domestic market for export-oriented Russian coal miners has always been an insurance against export problems. Now export prices are unusually favorable: in May, the price of Russian thermal coal in Asia exceeded $ 100 per ton, which was last observed in 2018 (see Kommersant, May 19). At the same time, according to Platts, prices for thermal coal in Europe are not far behind: at the end of May, quotations in North-Western Europe were approaching $ 95 per tonne (CIF ARA). According to Argus, the profitability of Russian thermal coal exports to the west has more than doubled this year, and tripled in the Asian direction. All additional volume of mined coal is exported, which leads to a reduction in competition for supplies to domestic consumers.

According to Argus, if in June 2020 there were 14 applications for the tender of TGK-1 for Apatitskaya TPP, then in May there was only one tender for the Partizanskaya TPP by RusHydro. Other large consumers confirm the low interest of suppliers in the domestic market. Thus, T Plus agrees with Argus that the low interest of coal companies in supplies to the domestic market is caused by the growth of export demand and prices.

RusHydro, which has coal-fired thermal power plants in the Far East, told Kommersant that coal producers are actively exporting coal to China, and export prices have increased significantly. Prices on the domestic market are not regulated and tend to export prices. Under the conditions of strict regulation of energy tariffs in the Far East, the enterprises of the group are experiencing difficulties with the purchase of coal. “There is also a problem with the supply of coal to thermal power plants by rail due to the increased traffic to the Far Eastern ports of transshipment. For several months we have been actively cooperating with the authorities, coal miners and Russian Railways, as we are obliged to enter the autumn-winter period with standard fuel reserves, “RusHydro says. Gazprom Energoholding and Inter RAO declined to comment.

The situation in the domestic coal market is similar to that in the ferrous metals market: the rise in domestic prices following export prices caused dissatisfaction among consumers of metal products and heated discussions about how to compensate for some of their losses through additional withdrawals from metallurgists. So far, the Ministry of Industry and Trade only supports the conclusion of long-term contracts and the provision of discounts for government projects. As for coal, large domestic consumers usually already purchase it under long-term contracts. In 2020, the Ministry of Finance considered the possibility of increasing the mineral extraction tax for coal (see Kommersant on February 11, 2020), but abandoned the idea after export prices fell to historic lows amid the pandemic.

Olga Plevako, head of the practice for working with enterprises of the metallurgical and mining industry at KPMG in Russia and the CIS, says that in May there was a temporary shortage of thermal coal on export markets due to several factors. Among them – the growth in coal consumption in China due to the economic recovery, a number of accidents at mining enterprises and logistics facilities, which led to a temporary restriction of supplies, as well as the redistribution of Australian coal supplies from the Chinese market to other regions. In addition, some enterprises carry out preventive maintenance in the summer, which prevents a sharp increase in production. Based on the prices of futures contracts and the volume of stocks, the high level of prices can last until September, the expert believes. Going forward, he expects a “price normalization” from the beginning of the fourth quarter of 2021 following a recovery in high seasonal production levels.

Evgeny Zainullin, Tatiana Dyatel, Polina Smertina