VIEW / Russia has found a replacement for Europe for the choice of coal :: Economics
While the West turns up its nose at Russian energy communications at a loss, India, on the contrary, is establishing new trade ties with Russia. It turned out that the Indians are buying up not only Russian oil, but also Russian coal, on which Europe has imposed an embargo. Experts are confident that Delhi will easily be able to absorb European volumes of coal from Russia. But manifestations of the Indian character in front of the US.
India began to buy not only Russian oil, but also Russian coal. Prior to accepting the role of the West against Russian hydrocarbons, Russian oil and coal were dependent on the Indian market. However, pragmatic industries seem ready to become a new market for Russia instead of the American and European markets.
In March, coal deliveries to India from Russia reached a maximum in the last two years. India bought 1.04 million tons of coal from Russia, the highest level since January 2020, according to analytics firm Kpler, CNBC reported. As many as two thirds of the March crisis on the ports of the Russian Far East. In early April, India announced that it plans to double its imports of Russian coking coal.
In 2021, the EU bought 48.7 million tons of thermal and coking coal from Russia for $3.7 billion. This is slightly less than a quarter of all coal exports from Russia (227 million tons). At the same time, in recent months Europe has begun to buy more from Russia – 5 million tons of coal per month. “Increasing exposure to India is growth on a very stable base. But the deliveries are still impressive,” says Sergey Kondratiev, deputy head of the economic department of the Institute for Energy and Finance. In 2021, the share of Russian coal in the composition is only 2%.
Until August, when the EU ban on Russian coal begins, demand for it outside Europe will increase significantly. “Whether it will be possible to redirect the entire volume from Europe to the East is an open question. But it should be understood that even if the loss in Russia is 1–2 million tons of monthly export shipments, or 10–20 million tons per year, this is not a critical failure for the Russian coal industry and will not throw it back. Russian coal miners will return to their position in 2018-2019, they will have good prospects to start increasing exports again in 2023,” Kondratyev said.
On average, Russia consumed 4 million tons of coal per month in the EU. Potentially, India could absorb this volume, especially if a discount is set on Russian coal. The money issue for India, as for many developing countries, is currently extremely important.
“Rebates on oil and coal are simply vital. Delhi sees what is happening in neighboring Sri Lanka, where there is a difficult economic situation, defaults are announced and conflicts are going on.
India needs energy at the lowest possible price because it keeps prices down, or at least not up, for the population. In the case of a possible choice in countries, the choice is small: either raise prices and face very costly and economic consequences, or increase the price of energy, which greatly affects the budget,” Kondratiev said.
What volumes will be diverted from Europe depends not only on the level of consumption in India. He’s very tall here. India is the second largest consumer and importer of coal in the world after China. The Hindus veered sharply off the coal supply at 85%. Coal accounts for 70% of the country’s electricity production. Russia is the sixth largest producer of coal, especially quality coal that will be sold at a discount due to the levy. Russia and India can help a friend in this situation.
In addition to supply and demand, there are a number of other needs. First, logistical problems can be solved. “Now a large amount of coal goes through the northwestern ports. But for coal mining in India, it is better to choose the ports of the south. But there can be high density here with coal deliveries by rail. “There is a large passenger load on the railroad in the southern part of the United States due to the restriction of flights in the region, which also occurs in freight traffic,” Kondratiev said.
Secondly, problems may arise with dry cargo ships, which are necessary for transshipment of coal. Russian exporters mostly chartered deals on the market, and some shipping companies took on the preference of working with them. These are increased freight rates for Russian coal miners. “However, this is not critical. The reason that coal prices are within the human maximum. Russian shippers withstand the rise in freight costs. And in the absence of a formal ban on working with coal cargo from Russia, there will still be those who want to transport Russian coal at such high freight rates. Developing countries also have bulk carriers,” says Sergei Kondratiev.
Thirdly, in order for India to receive Russian coal at a favorable price, the public company needs to negotiate directly with Indian buyers on supplies. “In the history of Russia, which was sold at a record discount, it was consumed that Indian consumers often paid for it at a premium to Brent. Due to the fact that they buy Russian oil, they do not occur, but international ones from traders who put big discounts in their pocket. This stimulates buyers to a serious increase in purchases more slowly,” says Kondratiev.
Therefore, it is necessary to agree on coal between Russia and India without intermediaries. And Russia, of course, is interested in an agreement not on spot, that is, one-time, but on long-term contracts for a year or more.
Another risk is geopolitical. “There are quite a lot of visitors in India. They pay more attention to discounts, but unlike state-owned companies, they are most likely concerned about sanctions threats from the US and Europe due to cooperation with regional enterprises,” the IEF expert believes. The US is already checking the choice of Delhi, while in words, accepting a more anti-Russian sample. Such pressure against India will increase, the expert believes.
“If India shows character in connection with US pressure, then after a while it can take almost all of our coal exports to the EU,”
– analysts of “Freedom Finance” consider. Coal consumption in India in 2021 rose to 1.06 billion tons, but production in 2020-2021 fell to 716.1 million tons. “Even to increase production in 2022, India will still need to import more than 200 million tons. Russia needs to redirect about 50 million tons. Earlier, the Indian government has already spoken about its intention to increase imports from Russia to 40 tons per year. If this plan is implemented, then most of the exports will already be redirected, and in the conditions of an international deficit, it will not be difficult to do this,” analysts at Freedom Finance say.
India and China together can take over the entire volume of the Russian market from the European market. China imports about the same amount of coal as India, more than 200 million tons. The Kuzbass authorities have already announced their readiness to reorient coal exports from the EU to China and India; last year, 36.3 million tons were shipped to the EU from this region. Delhi and Beijing are also considering paying through Moscow in mobile currencies and using payment systems that will secure these transactions from the “hands” of the West.
If gas from Europe goes to India, then some supplier will have to leave the Indian market. Australia is the largest exporter of coal to India today.
“If India consumes supplies from Russia, then it consumes coal that will be exported. UK Australia is far from the countries
due to increased logistics costs. And for India, prices, on the contrary, will be lower, since Russia is still forced to sell its energy resources at a big discount. It reaches 20-30%,” Freedom Finance analysts say.
Apparently, not China, but India, can be located from all this sanctions border of the West with Russia, if you look for at least some pluses in the situation.
“In my opinion, absolutely everyone will lose, because the overall level of products is growing and growing. Of course, Indian companies will buy Russian oil and coal at a discount, but one must understand that this discount will come from the already high oil price. At the same time, the economies of India, Europe, the USA and Russia are reproducing, because the prices of many goods are currently at the maximum level. To some extent, this is beneficial for Russia, because we export a lot of energy resources and vegetables that have grown in price. But due to sanctions restrictions, this benefit is also incomplete,” concludes Sergey Kondratiev from the IEF.