China has significantly reduced its purchases of Russian coal, yet remains the world's largest consumer of this hydrocarbon. Why did China reduce its imports of Russian coal? And what does the future hold for Russian coal producers?

In the first seven months of this year, Russian coal exports fell by 1.7 times, reaching $5.5 billion, according to China's General Administration of Customs. In physical terms, exports dropped by 10% to 54.4 million tons (3% in July).

The first quarter recorded the weakest export results, but recovery began in the second quarter, only to see a decline again in June. Despite this, China is the largest importer of Russian coal: in 2023, it accounted for more than half of all exports—100.9 million tons, a 50% increase compared to 2022.

Russian coal exports are also down to other regions. According to Kpler, which tracks maritime shipments, exports to India dropped by 11.5% in the first half of the year, to Turkey by 4%, and to South Korea by 1.7 times.

The primary reason for the reduction in coal supplies to China is customs restrictions. Since January 2024, China has imposed tariffs of 6% on imports of energy coal and 3% on coking coal. "Chinese regulators took this step to support domestic producers who have significantly increased supply in recent years. Coal production in China in 2023 surpassed pre-COVID 2019 levels by 23%, reaching 4,710 million tons, which is nearly double Russia's annual coal output," says Sergey Tereshkin, CEO of the Open Oil Market energy marketplace.

"China, through these tariffs, is making its domestic production more competitive. In recent years, it has actively invested in new coal production. On the other hand, there has been a noticeable gradual decrease in investments in new coal-fired power plants. It's not a collapse, but during the 2000s, China built more than in the following decade. As a result, coal production in the country is growing faster than consumption, so China now needs less imported coal. However, China remains the largest coal consumer in the world," says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (NESF).

Why is China slowing down the construction of coal-fired power plants?

"There is a noticeable imbalance in China's energy sector, with a heavy reliance on coal generation. Over the past decade, China has tried to correct this by investing in renewable energy. China has been the world leader in renewable energy investments for years, and is now first in wind and solar energy production. It is also continuing to build many nuclear and hydroelectric plants," says Yushkov. For example, China spent 18 years constructing the "Three Gorges" hydroelectric power station, the largest in the world.

China reduced the number of permits for new power plants by nearly 80% in the first half of 2024, according to a Greenpeace report on East Asia. In that period, only 14 coal power plants with a total capacity of 10.3 GW were commissioned, a 79.3% decrease compared to the first half of 2023.

At the same time, the combined capacity of China's wind and solar energy reached 1,180 gigawatts, surpassing coal power capacity at 1,170 gigawatts, and accounting for 84.2% of all newly connected capacity in the first half of 2024.

According to Rystad Energy's forecast, by the end of 2024, China's wind and solar generation capacity will reach 1,200 gigawatts, exceeding the total capacity of coal plants.

Experts also highlight logistical problems as a barrier for Russian coal exports. "The main issue here is the capacity shortage of the Trans-Siberian Railway and the Baikal-Amur Mainline, which can only be addressed through budget investments in the Eastern polygon infrastructure. However, this will take time," says Sergey Tereshkin.

What does the future hold for Russia's coal industry? Can Russian producers find alternative markets?

"We will likely see a plateau in coal exports to China due to reduced shipments. The Russian companies most affected will be those farthest from China and from the Baikal-Amur Mainline and Trans-Siberian Railway, particularly in the Kemerovo region and Kuzbass. They have already been hurt since August 2022, when the EU banned coal exports to the European market, forcing companies to redirect these volumes to Asian markets. Railways are overloaded, and it has become much more expensive to transport coal from Kemerovo to new markets due to the long transport distances," explains Igor Yushkov.

"Redirecting coal exports from China to other markets will be difficult. On the one hand, China is the world's largest coal importer, with a global share of 29% in 2023, and no other country currently has a comparable internal market. On the other hand, neighboring India is also focusing on developing 'clean' energy: Prime Minister Modi has repeatedly stated plans to increase renewable energy capacity from 176 GW in 2023 to 500 GW by 2030," says Sergey Tereshkin.

Turkey will gradually reduce its consumption of energy coal in the coming years due to the phased launch of four units at the Akkuyu nuclear power plant, which is expected to supply 10% of the country's electricity needs, the expert adds.

"In general, the export of energy coal will decrease, but the situation for coking coal could be better. Coking coal, as a primary resource, is crucial for metallurgy. Demand for it will depend on the pace of China's economic development. Additionally, coking coal exports will shift to the Indian market, where rapid urbanization is taking place, and the steel industry needs it," concludes the NESF expert.



Translated using ChatGPT

Sourse:  https://vz.ru/economy/2024/8/27/1283982.html