Russia may replace Australia in China’s coal supply chain
Russia has a chance to improve its trade balance with China through coal exports, as Beijing is seeking to diversify its supplies. Last year, the People’s Republic already increased coal imports from Russia, Mongolia and Indonesia, while Australia remained the largest supplier.
China’s coal imports from Russia may increase, says South China Morning Post attributing this to Beijing’s attempts to diversify its coal supply away from Australia amid ongoing tensions with Canberra. For its part, Russia is aiming to supply more coal to its biggest trading partner, which is the world’s largest energy consumer. Since May 2020, Russia’s trade balance with China has turned from a surplus to a deficit, says Emerging Markets Economist at Capital Economics Liam Peach, explaining it by a fall in exports of oil and gas and an increase in imports of electrical machinery and equipment. According to Peach, energy exports to China made up around 15% of Russia’s total energy exports before the coronavirus outbreak.
Meanwhile, relations between China and Australia deteriorated after the Australian government supported an international enquiry into China’s handling of COVID-19. The tensions resulted in a series of curbs on Chinese imports of Australian products including coal. “Russia has a chance to replace at least part of it [coal imports] with its own coal,” considers Madina Khrustaleva, an analyst at TS Lombard research company, adding that several Russian coal deposits are ready to begin supplying China.
At the beginning of March, President Vladimir Putin called for an increase in coal exports to Asia from Kuzbass, a coal-mining region in southwestern Siberia. Russia has been modernising its key railway networks, as such growth will require an expansion of the country’s rail infrastructure.
According to Khrustaleva, Russian coal companies are forming joint ventures with Chinese enterprises in a bid to increase coal trade. In December, Elgaugol, the developer of the Elga coal deposit in Yakutia, said that it had formed a joint venture with Fujian Guohang Ocean Shipping. The coal producer plans to increase supplies to China from an estimated 1-1,5 million tonnes of coal in 2020 to 15-18 million tonnes in 2021.
“Russia is clearly in pole position to substitute imports from Australia. The increase in oil prices is also helping Russia, so all in all there are really tailwinds for Russia. However, all of this means Russia’s increasing its dependence on China, which is bad news in the long run,” commented Chief Economist for Asia-Pacific at Natixis Alicia García-Herrero. Moscow is also looking to increase its oil and gas supplies to China’s recovering economy.