Russian coal shipments fall 14% as sanctions bite

During the first seven weeks of 2024, Russian coal shipments have fallen 14% y/y. Volumes have gradually declined since October 2023 when logistical challenges started to emerge. Two years after the start of the war in Ukraine, sanctions on Russia are limiting the country’s ability to export coal.

A significant portion of Russian coal is sourced from Siberia and transported to Russian ports by rail. Since the start of the war in Ukraine, railways in Russia have been under pressure as sanctions pushed Russia’s coal exports eastwards. In 2023, China was the destination for 41% of Russian coal shipments.

Sanctions on Russia have added further pressure to logistics, culminating in lower effectiveness and reliability of railway transport since October 2023. Russian railway transport is reported to be challenged with difficulties in securing imports of spare parts such as specialized lubricants, proprietary bearings and electronic components. Efforts to circumvent this issue by replacing imports with domestic equipment have fallen short, as these substitutes are often of lower quality.

The overall impact of poor Russian logistics on the dry bulk market seems to be marginal, as global coal supply is ample. In the period since October 2023, global coal shipments have increased by 7% y/y despite the loss of Russian coal. Consequently, it seems that Russia is bearing the brunt of the impact.

The impact of lower coal shipments on sailing distances also seems to be residual. Shipments from Russia have below average sailing distance, but they have been replaced by shipments with similar distances.

Despite the obstacles that Russia is facing, the government seems determined to boost coal exports to China. Russia is working to increase coal mining and remove bottlenecks in their infrastructure. Two major railways in Siberia will be electrified and an agreement was reached to build a new railway bridge between Russia and China. If Russia is successful, exports over land to China could increase, replacing some of Russia’s coal shipments.

Even as Russia invests in infrastructure, it is possible that total coal exports to China will not significantly increase. The IEA estimates that China’s coal demand may have peaked in 2023, limiting further export growth. Furthermore, it might be difficult for Russia to find new trade partners amid sanctions and competition from other exporters such as Indonesia and Australia.

Russian coal shipments 2023-2024 graph 



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