Russia’s coal imports from China nearly doubled between March and April, reaching 4.42 million metric tons, according to Refinitiv’s trade figures. Russia has overtaken Australia as China’s second-largest supplier since last year and now accounts for 19% of its coal imports, up from a 14% share in March.
Coal imports grew by 64% in 2021, and domestic production reached a record 4.13 billion metric tons. These figures are expected to be even higher this year, as President Xi Jinping gives priority to investing in infrastructure to revive the economy.
China imported a record 1.09 million metric tons of sea coking coal from Russia last month, up 10 percent from April last year, according to Matthew Boyle, a leading dry bulk analyst at data firm Kpler. Coking coal is used to make steel.
First there was immersion
Coal trade between China and Russia declined shortly after Moscow invaded Ukraine in February and Western countries began hitting Russia with unprecedented sanctions. Chinese banks were initially reluctant to provide financing for purchases of Russian goods, according to Reuters.
“After Russia launched the attack, the Chinese and many other buyers initially cut back to assess the risk of secondary sanctions,” said Lauri Milivirta, a senior analyst at the Helsinki-based Center for Energy and Clean Air Research.
By March, that reluctance had evaporated.
“When it became clear that the EU was not taking swift action to ban imports, and this effectively prevented both the US and the EU from imposing broader sanctions that would affect other buyers, there was a jump in purchases as a result of latent demand. I said, Milivirta.
The European Union has since approved a ban on Russian coal, which is due to take effect in August. Earlier this month, he also proposed banning all Russian oil imports within six months.
It is cheap
China is not only buying a lot of Russian coal now – it is also buying it at a big discount.
Russia is the world’s third-largest coal exporter, and world commodity prices have risen since it invaded Ukraine. ICE Newcastle’s coal futures have risen more than 40 percent since early March.
“Sanctions have created a sharp split in the global sea coal market in recent months, as many importers are no longer able or willing to import coal from Russia,” said Toby Hassal, a leading coal market analyst at the London Stock Exchange Group.
As the group of buyers shrinks, those importers who can and want to buy coal from Russia “pay much lower prices for this supply than coal from other origins,” Hasal said.
In April, first-class Russian coking coal delivered to the port of Jingtang in northern China was priced at 2,710 yuan ($ 403) per metric tonne, according to Chinese industry data provider MySteel. That’s $ 475 for US coking coal reaching the port and $ 423 for coal mined in China.
Price reductions continue this month.
By the end of last week, Russian coking coal in northern China’s ports averaged about $ 439 per metric tonne, according to Hangzhou-based data provider Hithink Flush Information. Australian coal costs $ 512 and Chinese coal $ 496.
For Beijing, buying more from Russia is not only a friendly gesture to Moscow, but also an intelligent move that benefits China’s own economic needs.
“So far, the government appears to be pursuing friendly relations with Russia, without encouraging or directing Chinese companies to increase business with the country and discouraging anything that might run counter to sanctions imposed on China,” Milivirta said. .
“This line means that China’s imports from Russia are likely to grow simply on a market basis, as other buyers move to an embargo on Russian fossil fuels,” he said.
Why does China need so much coal?
Despite promises to reduce its dependence on fossil fuels, China still needs coal to fuel its economy. Up to 60% of China’s electricity production is generated by thermal coal in 2021, while more than 90% of China’s steel is produced in blast furnaces that burn coking coal. Overall, coal accounted for 56% of China’s total energy consumption last year, according to the National Bureau of Statistics.
“The Chinese government is currently pushing for all sorts of infrastructure and construction projects, including coal mining projects, to offset the effects of the real estate downturn and the blockade of Covid on other parts of the economy,” Milivirta said.
China has been trying to boost coal production since last year, when a severe energy crisis cut off power to millions of households and forced many factories to cut production.
On Thursday, Premier Li Keqiang said a stable electricity supply is crucial to China’s growth goals.
China will “resolutely” prevent a recurrence of any power outages this year, Li said during a visit to a power center in Yunnan Province, China.
The National Energy Administration has set a target of 4.4 billion tonnes of Chinese mines this year, 300 million more than last year’s record production.
In another effort to secure supplies, the government cut all tariffs on coal imports to zero between May 1 this year and March 30, 2023. Previously, tariffs ranged from 3% to 6% depending on the type of coal.
Indonesia, the current №1 supplier to China, has enjoyed zero tariffs for years thanks to the Free Trade Pact between China and ASEAN countries. But Russia was still subject to tariffs until this month.
“We estimate an increase of 30%. [Russia’s] Exports to China are up to 71 million tonnes this year, up from 55 million tonnes in 2021, analysts at Morgan Stanley said in a research note last month.
A new bridge between China and Russia could help. The first railway bridge connecting the two countries was completed last month. The 2,215-meter-long bridge will be used mainly to transport coal, iron ore and other goods from Russia to China, according to Chinese state media.
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