Russia's coal industry crisis deepens amid Western sanctions

The Russian coal industry, one of the largest resource sectors of the economy, has hit a deep slump. Coal companies are drastically reducing production, and the industry is facing its worst crisis in 30 years, according to the Moscow Times.

According to data from Rosstat cited by the newspaper, in July, coal production in Russia fell by 6.7% year over year, and the total volume of 31.5 million metric tonnes was the lowest since the pandemic in 2020. Compared to peaks in December 2022, coal companies lost about 12 million metric tonnes of monthly production.

The production of bituminous coal—the main product of mining, accounting for 80% of production—fell by 8.2%, and the most valuable anthracite grade dropped by nearly a quarter (23.7%). In August, the drop in coal production accelerated to 10.1% year on year.

According to experts, this is proof that Western sanctions have become a key problem for the coal industry.

Unlike oil and gas, which the European Union continues to purchase, albeit in small quantities, coal is subject to a complete embargo. In an interview with the newspaper, Janis Kluge, a researcher at the German Institute for International Security Studies, explains that Asian countries that purchased Russian coal last year have significantly reduced demand.

Deliveries to China in the first half of 2024 fell by 8%, with no expected increase, as Sergei Civilev, head of the Russian Ministry of Energy, reported in September. It should be noted that Beijing has imposed tariffs on Russian coal.

According to CREA estimates, India reduced coal imports from Russia by 55% and Turkey by 47%. The newspaper reports that total coal exports from Russia in the January-July period dropped by 11.4% to 112.7 million metric tonnes.

Independent energy expert Maksym Ivanov believes the Russian coal industry is entering its worst crisis in 30 years. In addition to sanctions, Chinese tariffs, and forced reductions, the crisis is compounded by a global decline in coal prices, which fell by as much as 34% in the first half of the year.

As a result, more than half of coal companies have become unprofitable, and the balanced financial outcome for the entire industry has turned negative. Total losses in the coal industry in the first half of the year amounted to 7.1 billion rubles, reports the Moscow Times.

Moreover, the industry is struggling with blocked payments and the unavailability of imported equipment due to sanctions, and it is forced to offer discounts to clients who avoid "toxic" companies from Russia, according to Kluge.

Moreover, transporting coal to Asia is expensive. For example, suppose an oil tanker carries cargo worth $50 million and delivery to India costs $5 million. In that case, a coal ship carries cargo worth only $15-20 million, with transportation costs "consuming" as much as one-third of the revenue, according to the newspaper.

The Russian government includes a steady increase in coal production in its energy strategy—from 437 million metric tonnes annually to 482 million metric tonnes in 2030 and 556 million metric tonnes in 2050. However, Ivanov believes there is almost no demand for this coal: China is developing its production, Asian countries strive to shift to "green" energy, and steelmakers worldwide are introducing low-emission technologies, according to the "Moscow Times."

According to experts, the closure of many companies in the mining sector seems inevitable in this situation.