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Russia-Ukraine conflict sees coal deliveries drop to zero

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Source: Montel, July 5, 2019

Russian railed coal exports to Ukraine dropped to zero last month with importers facing fresh hurdles in obtaining supply, as new government red tape exacerbates existing unofficial restrictions on shipments, sources from the region told Montel.
While Ukraine ordinarily rails in around 1.5m tonnes/month from Russia, new export rules introduced last month saw deliveries grind to a complete halt, said a source with a large Ukrainian energy firm. 



“In June, no coal was approved [for export], but from July the situation changed and 700,000t was permitted,” he said, noting however the approved volumes were largely for small consumers, and not large power firms. 



Under the newly introduced rules, a Ukrainian importer must apply directly to the Russian energy ministry for permission to import. 



“You give details of the exact tonnage and shipment dates and wait for approval, or not,” he said, noting the application is made in the month prior to shipment. 



Russia does not give any reasons for turning down the requests, and a refusal can mean the importer will need to move quickly to secure alternative supplies, he said. 



“You only find out at the end of the month [before shipment], so you may suddenly need to get coal from Poland, Colombia or the US,” he said, noting however that high domestic stocks in June alleviated any immediate supply concerns. 



Also, low seaborne prices – with the Global Coal Des ARA index last pegged down nearly 40% since the start of the year, at USD 52.51/t – meant alternative origin supplies were easier to source. 



“We see low prices on the global market, so Ukraine can import very cheap coal [and] we see a lot of coal arriving from the US, or other countries,” he said, adding however Ukrainian importers anticipated more Russian supply in August. 



“This is because Ukraine is one of Russia’s main markets, accounting for 10% of Russian exports. They need Ukraine to take their coal.” 



But another Ukrainian coal importer said there was still interest for low-volatility – or “less ignitable” – thermal coal, of non-Russian origin. 



“Russian coal is ruled out,” he said. 



State-owned Russian Railways (RZD) handled a two-year low 920,000t/day of coal in June, down 6% on the year, with a company spokesperson in part citing “a decrease in supplies to Ukraine”. 



But she declined to comment on the reason. 



Conflict 
“The problem with railing coal from Russia to Ukraine started two years ago – particularly for thermal coal for Ukrainian power plants,” the first source said. 



Prior to the Russo-Ukrainian War, which began in 2014 and continues into 2019, Ukraine obtained all of its thermal coal from domestic mines, with low-volatility coal sourced from the eastern Donetsk and Luhansk regions – collectively known as “Donbass” – and high-volatility coal from the rest of the country. 



As the Donbass region came under control of pro-Russian separatists – with the establishment of the Donetsk People's Republic in May 2014 – supply to the rest of Ukraine declined. 



“Since 2017, there has been nothing from Lugansk and Donetsk, so Ukraine began importing from Russia,” the source said, noting however Donbass coal is still being “unofficially” mined. 



An estimated 150,000t/month of Donetsk and Luhansk coal is taken back into Russia, and exported from the country’s own Black Sea ports, as “Russian” coal, he said. 



“European buyers don’t care where their coal comes from, as long as it’s cheap.” 

News Source: Montel

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