Russian coal sector on the rise

Russia's extractive industries looked very attractive amid an overall fall in the domestic corporate sector last year. Coal mining has become one of the most profitable sectors showing a growth of 68% y/y due to strong demand from European and Asian buyers, especially from China.

Russia is now the world's third largest coal exporter after Indonesia and Australia, reports bne IntelliNews. In 2017, the country's coal export added 13% and reached 185,5 million tonnes worth $13,5 billion, which is a post-Soviet record. The coal mining industry itself showed an impressive growth of 68% y/y. By comparison, the aggregate net profit of Russian extractive industries increased by 17,9% last year, while the overall country's corporate sector showed an 8,7% fall in profits, according to Rosstat.

Since the beginning of 2016, the price of coal has doubled (from $50 to $100 per tonne) because of a strong demand for coal imports from European and Asian buyers. China played a special role in this process: in 2016, the Chinese government initiated an energy reform in order to upgrade the country's fossil-fuel dominant energy structure and decrease air pollution. As a result, many small coal companies across the country have closed. The Chinese coal consumption has decreased steadily since 2013, but in 2017, there was a surge in electricity demand due to an increased heavy construction activity before a national congress in October. At the same time, China's hydropower productivity dropped by 40% last year and thus wasn't able to meet the demand, so the People's Republic had to increase its coal import. Russia, Mongolia and Australia became primary benefactors. According to data from China's General Administration of Customs, coal supplies from Russia grew by 36,3% in 2017, while Mongolia and Australia added 27,6% and 13,4% respectively. In February 2016, China also banned coal supplies from North Korea, which was its fourth largest coal provider. ''The majority of suddenly available market share was grabbed by Russia, as mining costs in Russia are cheaper than in China's northeast region,'' commented Cheng Gong, an analyst at the China National Coal Association.

Coal power plant in China. Photo: Rodrigo

However, supplies to China totalled only 11% of Russia's overall coal export in 2016. Russian energy conglomerates such as Evraz, a multinational steel-making and mining company, focuses on other markets, mostly Japan and South Korea.

Currently, Russia is developing new coal production centres in the Far East to further boost domestic energy production. Besides, the government intends to improve the existing infrastructure connecting the coal production facilities in the south of the country with the Far East ports. The suggested improvements in the Baikal-Amur Mainline and Trans-Siberian Railway are aimed at boosting the throughput of both railway networks sixfold to 180 million tonnes over the next six years. At the same time, private companies operating ports in Russia's Far East are building new facilities to be able to service the rising demand for Russian coal.

By Anna Litvina

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