Russia’s power play: How conflict affects energy and commodity markets
The recent and tragic events in Ukraine have resulted in sanctions being imposed on Russia by the US, UK, EU, Japan, Canada, Australia, and the Nord Stream 2 pipeline certification process has been halted by Germany.
To date, there have been no sanctions on commodity exports from Russia, but if these eventuated they would have significant impacts on global markets. Even if sanctions are not imposed, importing countries may change suppliers simply due to the threat of sanctions, or disruptions to global shipping as evidenced by reports that a Cargill chartered bulk carrier has been struck by a stray artillery shell in the Black Sea. Germany has already announced it is building up strategic reserves of oil, gas and coal to protect against any disruption in Russian supplies, which account for around 35% of its oil imports, 55% of gas and 50% of coal imports.
Russia is the world’s third largest seaborne coal exporter, with total 2021 volumes of 189Mt, behind only Indonesia (429Mt) and Australia (373Mt). Russia also exports smaller volumes via rail into Europe on the west and China on the east/south. The potential loss of this supply should sanctions be imposed would put significant pressure on alternative trading partners and routes.
Russian metallurgical coal exports have risen strongly since 2009, more than quadrupling over the period, driven by government support, a weak rouble and improving infrastructure capacity (particularly on the east coast).
This growth has moved Russia from a distant 5th in the ranks of metallurgical coal exporters to second, only behind Australia, helping cover China’s withdrawal from the market and a decline in US volumes since 2011. Understanding what opportunities are possible within the market if Russian coal sanctions are imposed is critical for portfolio optimisation and risk management within the commodity sector. This can be achieved by understanding the coal quality exported by Russian suppliers to various markets.
Russian met coal exports comprise of a range of PCI, semi-hard, semi-soft and premium low-vol coking coal, as charted below. Should sanctions be imposed on Russian commodity exports, these sub-markets would experience rapid shortages and present opportunities for other suppliers to step in. All charts are from Commodity Insights’ market-leading Metallurgical Coal Portal, which captures and provides this data for all seaborne trade in an easily downloadable chart or data table format.
From a thermal coal perspective, Russian exports have more than doubled over the last decade to over 130Mt in 2021, trailing only Indonesia and Australia in terms of seaborne volumes.
This export growth, supported by rapidly developing infrastructure, provided increasing competition to the established suppliers Indonesia and Australia into the Asian market, which grew rapidly until 2020, when Covid-19 slowed growth.
Developed specifically to help market participants navigate the current challenging geopolitical situation, Commodity Insights’ Coal Trade Report provides detailed insights into the volume and quality of Russian seaborne coal exports to almost 30 trading partners, covering 11 metallurgical coal categories ranging from Premium Low-Volatile Coking Coal to Pulverised Coal Injection (PCI), and a range of thermal coal categories (e.g. >6,000kcal/kg).
The Report helps market participants identify risks from a Russian supply perspective, and opportunities for the possible replacement of Russian coal imports should sanctions be imposed.