Whatever the extent of sanctions on Russian energy provision in the coming weeks, there is no doubt that there will be disruption to some key trading routes given that last year Russian coal was exported to 53 different countries!

Russia has also been ramping up shipments from several strategic ports in each geographic area. Thus exports from Ust-Luga in the Baltic have increased from 33 MMT in 2019 to 43 MMT in 2021, similarly in Vostochny, on its Pacific coast, from 30mt to nearly 34 MMT whilst the sharpest rise has been seen in the Black Sea from Taman where its high quality anthracite exports have risen from a mere 2 MMT in 2019 to 14 MMT last year.

It is yet to be seen how individual governments will view the extent to which Russian coal remains vital for their energy needs but it seems that for instance, collectively the EU may try to wean itself off the 50 MMT (38 MMT seaborne and 12 MMT overland) it currently imports from Russia; evidence of this sharp reduction in EU trade has already led Russian coal miner, SUEK, to declare force majeure on shipments from its Baltic and Arctic ports. As Russian imports represent 52% of the EU’s total coal consumption, finding ready alternative supply elsewhere may provide a challenge though it is noticeable that a Capesize was fixed from Queensland to Rotterdam this week, equivalent in tonne mile demand to approximately eight Panamax shipments from the Baltic!

China is the other major consumer of Russian coal importing 36.5 MMT last year, the majority in predominantly Supramax/Panamax tonnage from the Pacific ports though one Capesize a week was sailing from Taman in the Black Sea to China during 2021; whether international owners or indeed Chinese tonnage will wish to load in the Black Sea ports going forward given the current dangers and the sharp increases in P+I Cover is open to doubt, thus this might well be the first trade route to be adversely impacted.

South Korea and Japan import 17.2 MMT and 16.5 MMT coal respectively from Russian pacific ports and though prompt shipments continue to move there is a question mark about the extent to volumes they may wish to import in the medium term. Taiwan at 11 MMT is also a significant consumer of Russian coal as are Morocco (8 MMT) as well as India and Turkey (each 6 MMT). Should Brazil wish to switch supply, their 6 MMT could possibly be sourced from Colombia and USA whilst given the competition for Pacific coal, Vietnam (5.5 MMT) and Malaysia (4 MMT) may struggle to source elsewhere unless volumes do indeed ramp up from Indonesia later in the year.

Assessing the impact on the Dry Cargo market is difficult to accurately predict given the tightness in supply from alternative sources should sanctions on Russian coal come more broadly into force, but the overall disruption will in all probability increase tonne-mile demand should world seaborne trade continue at around its current 1.25 BMT. But finding alternate sources of supply to Russia might be a challenge. Indonesia, the world’s largest exporter (432 MMT in 2021) has already experienced export bans this year (to ensure domestic coal security) and is also suffering from limited barge transport and disruptive weather conditions. Australia is already close to export capacity at around 370 MMT as is South Africa (70 MMT) and Canada (33 MMT). The USA has the potential to export more than the 73 MMT it shipped in 2021, though any significant increase is limited by port export capacity. Similarly Colombia could also increase exports above last year’s 56 MMT (as recently as 2017 they shipped 103 MMT) but their Prodeco mine remains shut and other internal logistics issues persist. It is noticeable that stockpiles have been building up in China with domestic production (4 BMT annually) now running at record levels. Could China perhaps be tempted to release some its own coal given that the price for international coal continues to skyrocket- the price of Richard’s Bay coal for example touched $427/tonne last week against the $91 in mid-March last year! China presently only exports a meagre 4 MMT but twenty years ago Chinese coal exports were as high as 103 MMT!

We currently forecast global coal exports to increase by around 25 MMT(+1.9%) in 2022 but given the uncertainty of the Russian export position any forecast is subject to a number of ongoing provisos.