After buying Russia’s discounted oil, India looks set to buy its coal

Although the world shuns Russian goods, India is turning its attention to Russian coal. India’s coal imports from Russia rose in March 2022 to heights not seen in more than two years, according to commodity intelligence firm Kpler.

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India’s hunger for coal is growing. Although the world shuns Russian goods, the Asian giant is turning its attention to Russian coal – having already bought up its discounted oil.

The European Commission last week proposed banning Russian coal as part of a new round of sanctions against Moscow for its invasion of Ukraine.

On the other hand, India’s coal imports from Russia in March jumped to heights not seen for more than two years, according to data from commodity intelligence firm Kpler.

Coal imports from Russia were 1.04 million tonnes, the highest level since January 2020, Kplers Matthew Boyle, chief dry cargo analyst, told CNBC in an email. As much as two-thirds of the month of March came from Russia’s ports in the Far East, probably after the war began in late February.

“Markets suspect that India and China could increase coal imports from Russia and offset some of the effects of a formalized EU ban on Russian coal imports,” said Vivek Dhar, director of mining and energy raw materials research at the Commonwealth Bank of Australia. last week.

Last week, India said it planned to double imports of Russian coking coal used to make steel.

“The EU ban on Russian coal imports comes at a time when the international coal market is already very tight with similarly high prices,” Rystad Energy said in a note. “An increase in demand for coal in Asia as countries try to minimize imports of expensive natural gas has caused coal prices to rise in the past year.”

Despite warnings from the West, India continues to lean into its supply chain relationship with Russia for natural resources such as oil and coal.

Samir N. Kapadia

commercial manager, Vogel Group

The main benchmark for coal imported into Europe – API 2 – so that May prices rise to $ 300 per tonne. tons last Tuesday, compared to $ 70 per. tons a year ago, according to Rystad Energy.

India’s coal crusher is likely to benefit from a mega-trade agreement it signed with Australia on April 2, as the commodity qualifies for the abolition of tariffs.

Tariffs are to be removed on more than 85% of Australian goods exported to India. However, it will have its limitations as Australia will not have enough coal to meet India’s growing needs, analysts said.

Coal accounts for about 70% of India’s electricity production, according to the International Energy Agency’s 2021 India Energy Outlook report. The country is the world’s second largest consumer and importer of coal, with China as the first.

Russia is the sixth largest coal producer in the world. In 2020, 54% of the country’s coal exports went to Asia, while about 31% went to the Organization for Economic Co-operation and Development countries in Europe, according to the US Energy Information Administration.

Doubling despite ‘warning shots’ from the US

Before the war started, India bought very little coal from Russia, which only accounted for about 2% of India’s total imports in 2021.

“We are moving in the direction of importing coke coal from Russia,” Indian Steel Minister Ramchandra Prasad Singh told a conference in New Delhi, according to Reuters. He said the country had imported 4.5 million tonnes of coking coal from Russia, but did not specify the period.

“Despite warnings from the West, India continues to lean into its supply chain relationship with Russia for natural resources such as oil and coal,” said Samir N. Kapadia, head of trade at government relations consultancy Vogel Group.

Kapadia said it would rely on a currency swap deal “to circumvent some of the financing challenges in the market.” A currency swap line is an agreement between two central banks to exchange currencies, created to improve liquidity conditions and provide foreign currency financing to domestic banks during periods of market stress.

Such a mechanism would allow India to buy Russian energy exports and other goods – even with Western sanctions restricting international payment mechanisms.

Several Russian banks already have has been cut out by SWIFT, a global system that connects more than 11,000 member banks in about 200 countries and territories globally.

India’s rising coal dependence

India’s import dependence on coking coal has risen to around 85%, according to the CBA’s Dhar.

A mega trade agreement it signed with Australia earlier this month may bring some relief, but even that may be limited.

“Australia just will not be able to supply India with the extra tonnes of coke it requires for its growing steel production fleet because supply growth will be limited,” Dhar said.

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Late last year, India was hit by coal shortages as its power demand rose sharply.

The only way is for Australia’s coke coal exports to move away from other countries, so India may require a larger share – but that is unlikely as countries are now considering moving away from Russian coal, according to Dhar.

“Given that South Korea, Japan and Europe are seeking to diversify away from Russia (~ 10% of global coking coal exports), it is even more difficult to build the case that demand for Australian coking coal will weaken from a larger buyer within a foreseeable future “said Dhar.

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