Column: Asia unlikely to rescue Russian coal amid Europe ban

Trains move at Borodinsky opencast colliery, owned by the Siberian Coal Energy Company (SUEK), near the Siberian town of Borodino east of Krasnoyarsk, Russia February 26, 2019. REUTERS/Ilya Naymushin

LAUNCESTON, Australia, April 11 (Reuters) - Russia is putting on a brave face when it comes to Europe's planned ban on coal imports, with Moscow saying it will simply sell to other markets.

By other markets, Russia most likely means Asia and Moscow is most likely being hopelessly optimistic if it thinks Asia is going to swing dramatically towards Russian coal and replace what's lost in exports to Europe.

The European Union agreed on April 8 a series of new sanctions on Russia, including banning imports of coal, which totalled 48.7 million tonnes in 2021. read more

Russia hit back later that day, saying coal exports would be redirected to other markets, and that the ban will backfire on Europe. read more

But Moscow could be in for a shock if it's banking on Asia as there are already signs that the most populous continent is likely to buy less Russian coal, rather than more, in coming months.

Japan, the world's third-biggest coal importer, has already moved to ban imports from Russia, with Trade Minister Koichi Haguida saying on April 8 that the country would end purchases from Russia, and seek to find alternatives. read more

Russia supplied about 11% of Japan's coal imports in 2021 and ending purchases would likely come at a high cost, given the alternatives are likely limited to more expensive, and geographically distant, cargoes from Australia and the United States.

Japan already appears to be scaling back imports of Russian coal, with commodity analysts Kpler estimating April's imports will reach around 687,000 tonnes, down from 871,000 in March and official customs data of 1.57 million in February.

If Japan cuts out Russian coal completely, it means that almost 20 million tonnes of coal will be looking for new buyers, given Japan's official imports from Russia were 19.73 million in 2021.

China, the world's biggest coal importer, would seem an obvious destination for Russian coal, given Beijing's ongoing support for Moscow after the invasion of Ukraine on Feb. 24.

But China is also looking at curbing total coal imports by as much as 30% this year amid record domestic output and the high cost of imports.

China has acted to cap domestic coal prices in order to limit electricity costs, a move that renders thermal coal imports largely uncompetitive, aside from low-energy, but also low impurity, coal from Indonesia that is used to blend with higher ash domestic coal for use in power plants in China's south.

China has also been importing less Russian coal in recent months, with Kpler data for seaborne arrivals showing 2.4 million tonnes in March, 2.34 million in February and 2.84 million in January.

This contrasts with the period from March to December last year, when China's monthly seaborne imports from Russia didn't drop below 3 million tonnes, and peaked at 5.32 million in August of last year, according to Kpler.

While China may be happy to buy discounted Russian coal, there are question marks as to whether it needs to ramp up volumes, given strong domestic output and the likelihood that Russian coal isn't suitable as a replacement for Indonesian cargoes.

INDIA HOPES

India, the world's second-biggest coal importer, is probably Russia's best hope in Asia as New Delhi has also refrained from condemning the attack on Ukraine and will be keen to secure cheaper energy supplies.

India isn't a major buyer of Russian coal, with Kpler data showing imports of 1.04 million tonnes in March, and this was the most since January 2020.

More typical monthly volumes from Russia are between 400,000 and 600,000 tonnes, which makes Russia a minor supplier to India compared with Australia, Indonesia and South Africa.

But with globalCOAL assessing Australian thermal coal at Newcastle Port last week at $297.40 a tonne, and the South African equivalent at $265, India simply cannot afford to import at these prices as power plants would be massively loss making.

The question for the market is whether India can secure Russian coal at a steep enough discount to make it worthwhile, especially given the relatively long sea voyages that would be required from both Russia's European or Asian ports.

South Korea, Asia's fourth-largest coal importer, is also steering away from Russian cargoes, with at least one utility halting purchases after the Feb. 24 attack on Ukraine.

South Korea bought in a range of around 1.2 million to 1.5 million tonnes a month of Russian coal, according to Kpler.

Outside of Asia's major coal importers there is some scope for Russia to boost shipments to smaller buyers, especially those feeling the pinch of the current high prices.

But even if Pakistan and Bangladesh bought most of their coal from Russia, it would be nowhere enough to offset the likely losses from Japan, South Korea, and most likely China.

The opinions expressed here are those of the author, a columnist for Reuters.

Editing by Sam Holmes

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Clyde Russell is Asia Commodities and Energy Columnist at Reuters. He has been a journalist and editor for 33 years covering everything from wars in Africa to the resources boom and its current struggles. Born in Glasgow, he has lived in Johannesburg, Sydney, Singapore and now splits his time between Tasmania and Asia. He writes about trends in commodity and energy markets, with a particular focus on China. Before becoming a financial journalist in 1996, Clyde covered civil wars in Angola, Mozambique and other African hotspots for Agence-France Presse.