Coal market participants and analysts remain confident that the supply of coal into Europe will remain uninterrupted even if the EU imposed further trade sanctions against Russia, stopping high-quality thermal coal exports from Russia to Europe.
In July, sources said that a trading arm of a major European utility turned away a Russian thermal coal cargo because of EU sanctions against Russia. Sanctions were imposed at the end of July, targeting Russia’s access to capital markets and oil technology. While this would not have a direct effect on coal producers, market participants said that a Russian coal company was facing logistics issues as a result of the sanctions.
Sources were uncertain whether further cancellations were likely but pointed out that the US or South African coal exporters would likely be able to ramp-up exports to Europe if that happened. For example, South African Richards Bay Coal Terminal (RBCT) had 4.9m tonnes of coal in stock at the end of July, up 57% year on year.
In addition, the global coal market is still vastly oversupplied so a drop in exports to one market area would only cause an increase in Russian imports elsewhere, re-balancing the market on a global scale.
“Russia exports to both the Pacific and Atlantic basins. Hence, if cargoes are diverted away from the Atlantic basin, they will be forced into the Pacific basin, which is already very oversupplied,” an analyst said.
Regardless of the oversupply, however, rising gas prices could provide support to coal prices if the conflict escalates.
“In the long term, it will depend on the development of the conflict between Russia and Europe and whether this will have an impact on both coal and gas sectors, which should provide higher support to both fuel prices in Europe,” said Diana Bacila, analyst from Norwegian based Energy analysts Nena.
The on-going dispute between Russia and Ukraine has already caused some uncertainty over Russian coal supply. Physical coal prices rose 3.6% over the last 2 weeks with a flurry of DES ARA cargoes booked as market sources rushed to the market to replenish stocks.
Last week a total of 1.1m tonnes of spot DES ARA coal cargoes changed hands with prices peaking at $78.65/tonne for a 50,000 tonne October ‘14 cargo reported on Friday. ICIS data show this was the highest reported level since 1 April when a May ‘14 cargo traded at 79.60/tonne. Stacy Irish