BOFIT Viikkokatsaus / BOFIT Weekly Review 2022/35

The EU’s ban on imports of Russian coal entered into force on August 10. The EU decision to ban Russian coal, which was made last April, included a transition period to allow EU countries to continue importing Russian coal under existing contracts, but permitted no new agreements. The ban on Russian coal imports was adopted by the EU, UK and the US. Japan and South Korea have announced that they are also limiting the amounts of coal they import from Russia. Over a quarter of Russia’s coal exports went to EU countries in 2021, and about 20 % to South Korea and Japan. China accounted for just under 25 % of Russia’s coal exports.

Rosstat reports that coal production fell by 2 % y-o-y in the January-June period. Information taken from various sources suggest that Russian coal exports have yet to decline at all. Instead, the growth emphasis has shifted the EU to Asia. Much of the export growth has been driven by huge discounts on the price of Russian coal. The gradual loss of Western customers has forced Russian coal producers to cut their export prices in a manner similar to Russian crude oil sales on the world market. The discounts on Russian bituminous (black) coal relative to bituminous coal produced elsewhere hit record levels in spring and summer.

As of August 10, EU sanctions also ban the provision of financial services and insurance to vessels that transport Russian coal, regardless of destination. The move has caused a major upheaval in the maritime insurance industry and could well impact Russian coal exports overall. Nearly all Russian coal going to Asia must travel by ship. Media reports suggest that the maritime insurance ban has halted exports almost entirely in recent weeks.

Coal exports only have a marginal significance to the Russian economy as a whole, but they are critical at the local level. The rise in Russian coal production has been driven by exports. In recent years, about 60 % of Russia’s coal output has been exported. Production is concentrated in Western Siberia, particularly the Kemerovo oblast. Coal production is dominated by a few large energy and coal companies. The roughly 30 monogorods (single-industry towns) that produce coal are largely sustained by their earnings from coal exports.

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