Russia's coal crisis: Sanctions and shrinking demand hit hard
The Russian coal industry, one of the largest resource sectors of the economy, has hit a significant slump. Coal companies are drastically reducing production, and the industry is facing its worst crisis in 30 years, according to the "Moscow Times".
In July, coal production in Russia fell by 6.7% year-on-year, with a total volume of 34.7 million short tons, marking the lowest output since the pandemic in 2020, according to data from Rosstat cited by the newspaper. Compared to the peaks in December 2022, coal companies lost about 13.2 million short tons of monthly production.
Bituminous coal—the primary product of mining, accounting for 80% of production—fell by 8.2%, while the most valuable anthracite grade decreased by nearly a quarter (23.7%). In August, the decline in coal production accelerated to 10.1% year-on-year.
According to experts, this indicates that Western sanctions have become a key problem for the coal industry.
Unlike oil and gas, which the European Union continues to purchase, albeit in small quantities, coal is subject to a complete embargo. In an interview with the newspaper, Janis Kluge, a researcher at the German Institute for International Security Studies, explains that Asian countries that bought Russian coal last year have significantly reduced their demand.
Sergei Civilev, head of the Russian Ministry of Energy, reported in September that deliveries to China in the first half of 2024 fell by 8%, with no increase expected. Beijing has imposed tariffs on Russian coal.
According to CREA estimates, India reduced coal imports from Russia by 55% and Turkey by 47%. Total coal exports from Russia in the January-July period dropped by 11.4% to 124.2 million short tons, according to the newspaper.
Independent energy expert Maksym Ivanov believes the Russian coal industry is entering its worst crisis in 30 years. In addition to sanctions, Chinese tariffs, and forced reductions, the crisis is compounded by a global decline in coal prices, which fell by as much as 34% in the first half of the year.
As a result, more than half of coal companies have become unprofitable, and the balanced financial outcome for the entire industry has turned negative. According to the Moscow Times, total losses in the coal industry for the first half of the year amounted to 7.1 billion rubles.
Moreover, the industry is struggling with blocked payments and the unavailability of imported equipment due to sanctions, and it is forced to offer discounts to clients who avoid "toxic" companies from Russia, according to Kluge.
There is no demand for coal from Russia
Moreover, transporting coal to Asia is expensive. For example, if an oil tanker carries cargo worth $50 million and delivery to India costs $5 million, a coal ship carries cargo worth only $15-20 million, with transportation costs "consuming" as much as one-third of the revenue, calculates the newspaper.
The Russian government plans a steady increase in coal production in its energy strategy—from 482 million short tons annually to 531 million short tons in 2030 and 613 million short tons in 2050. However, Ivanov believes there is almost no demand for this coal: China is developing its production capacity, Asian countries strive to shift to "green" energy, and steelmakers worldwide are introducing low-emission technologies, according to the "Moscow Times."
According to experts, the closure of many companies in the mining sector seems inevitable under these circumstances.
