The US is gradually increasing pressure on Russian coal companies. At the end of August, Raspadskaya, Mechel-Mining together with the coal company Yuzhny Kuzbass and Yakutugol, and the SDS-Ugol holding were included in the SDN list. Sanctions were imposed on the Kuzbass AO Stroyservis with the Shestaki Mine, Berezovsky Mine, Permyakovsky Mine, Gubakhinsky Koks, and Mine No. 12. SUEK, Sibanthracite, Coalstar, and Elgaugol are already under blocking sanctions.
Almost all coal mining companies are now under sanctions. "This fact creates additional pressure on the sales prices of export-oriented companies in the context of possible secondary sanctions for buyers and banks through which transactions are carried out," says Alexander Kotov, head of consulting at NEFT Research.
Inclusion in the SDN list means that the assets of companies are blocked, and American citizens are prohibited from interacting in any way with people and companies included in it. Since American sanctions have a secondary effect, they make it extremely difficult to make payments: large banks do not want to risk being cut off from the dollar financial system.
How the restrictions affected
Despite the introduction of sanctions against mining companies, the industry experienced Western restrictions for the first time in 2022.
In 2021, Russian coal companies exported 223 million tons of coal, of which 125 million tons went to the Asia-Pacific markets, 50 million tons to Europe, 17 million tons to the CIS, and 6 million tons to North America. In August 2022, the European embargo on Russian coal came into force. Exports to Europe and Ukraine in total in 2021 amounted to 64 million tons, and to Poland alone - 7.8 million tons. In addition, Alexander Kotov comments that a number of unfriendly Asia-Pacific countries — Japan, South Korea, Taiwan — have significantly reduced or completely refused to purchase coal from Russia, which has created the risk of undersupply to foreign markets for another 55 million tons per year.
Exporters have managed to increase supplies to friendly Asian countries, including through discounts that they have provided to buyers. As a result, Russian coal companies have occupied a niche in the Asia-Pacific markets and are competitive suppliers.
Coal production in Russia by the end of 2023 amounted to 438 million tons, exports reached approximately 213 million tons, reported Deputy Prime Minister of the Russian Federation Alexander Novak. According to Deputy Minister of Energy Sergei Mochalnikov, in 2024, production and exports are planned to be maintained at 440 million tons and 210-220 million tons, respectively.
This year, coal companies are operating in conditions of low export prices and high logistics costs, which has a negative impact on their work. Kuzbass coal miners, located far from eastern ports, reduced production this year by 5.6%, to 118.3 million tons, the regional coal industry ministry reported in August. Coal shipments in July decreased by 12.5%, to 13.9 million tons.
In its production report for the second quarter and first half of the year, Mechel reported that, despite sanctions, the company sent almost all of its coal products to third parties in the second quarter to Russian customers. In the second quarter, coal production fell by 2%, to 2.5 million tons. As a result of the sanctions, the company lost a number of assets, including a coal trader in one of the Asian countries.
What difficulties are companies facing
The International Energy Agency gives a negative forecast for Russian coal exports - a decrease of 16 million tons compared to last year. The International Energy Agency report says that Russia is experiencing difficulties due to US sanctions against large Russian coal producers, which, in turn, have signaled other importers that have trade relations with the United States to reduce coal purchases from Russia. Russian coal companies are also affected by problems with rail transportation in the east and export duties, which may limit their international competitiveness, given the price-sensitive customer base, the report says.
Sanctions are certainly a problem, but the main restraining factor is the capacity of the railways, says a Kommersant-Review source in the coal industry.
“I am sure that Russian companies with their coal quality will feel comfortable in this market. We can extract and sell a lot, the only question is delivery, but work is actively underway here,” Russian Energy Minister Sergei Tsivilev noted in an interview with TASS. According to him, the capacity of the railway in the North-West will increase to approximately 220 million tons by 2030 from the current 150 million tons per year, and in the Azov-Black Sea direction - to 152 million tons from 125 million tons.
Since December 22, 2023, the US Treasury has been authorized to impose sanctions against banks in other countries for assisting in transactions for sanctioned Russian entities and facilitating the supply of technology and equipment for the Russian military-industrial complex. There are no clear criteria for classifying dual-use products as a sanctioned group of goods, emphasizes Alexander Kotov.
Falling under the restrictions threatens foreign banks with the suspension of correspondent relations with American banks and the freezing of assets in their accounts. As a result, since February 2024, the number of cases of non-crediting of outgoing currency payments on the side of partner banks of Chinese suppliers, the prohibition of Chinese banks to open letters of credit for their subsidiaries in Russia, as well as the refusal of Chinese banks to accept letters of credit from Russian banks that are issued in favor of Chinese suppliers has increased.
In essence, the expert says, Russian mining and metallurgical enterprises are faced with excessive compliance from Chinese financial institutions, which leads to the impossibility of purchasing Chinese equipment needed both for current production processes and for the implementation of large investment projects.
The Russian-Chinese project for the development of the Zashulan coal deposit by the joint venture En+ and the Chinese CHN Energy has already encountered implementation problems. "There are problems with payment from the Chinese side, yuan and rubles are not perceived quite clearly. As a result, we are faced with certain problems and delays," says Vladimir Kolmogorov, CEO of En+ Group.
Almost all coal mining companies are now under sanctions. "This fact creates additional pressure on the sales prices of export-oriented companies in the context of possible secondary sanctions for buyers and banks through which transactions are carried out," says Alexander Kotov, head of consulting at NEFT Research.
Inclusion in the SDN list means that the assets of companies are blocked, and American citizens are prohibited from interacting in any way with people and companies included in it. Since American sanctions have a secondary effect, they make it extremely difficult to make payments: large banks do not want to risk being cut off from the dollar financial system.
How the restrictions affected
Despite the introduction of sanctions against mining companies, the industry experienced Western restrictions for the first time in 2022.
In 2021, Russian coal companies exported 223 million tons of coal, of which 125 million tons went to the Asia-Pacific markets, 50 million tons to Europe, 17 million tons to the CIS, and 6 million tons to North America. In August 2022, the European embargo on Russian coal came into force. Exports to Europe and Ukraine in total in 2021 amounted to 64 million tons, and to Poland alone - 7.8 million tons. In addition, Alexander Kotov comments that a number of unfriendly Asia-Pacific countries — Japan, South Korea, Taiwan — have significantly reduced or completely refused to purchase coal from Russia, which has created the risk of undersupply to foreign markets for another 55 million tons per year.
Exporters have managed to increase supplies to friendly Asian countries, including through discounts that they have provided to buyers. As a result, Russian coal companies have occupied a niche in the Asia-Pacific markets and are competitive suppliers.
Coal production in Russia by the end of 2023 amounted to 438 million tons, exports reached approximately 213 million tons, reported Deputy Prime Minister of the Russian Federation Alexander Novak. According to Deputy Minister of Energy Sergei Mochalnikov, in 2024, production and exports are planned to be maintained at 440 million tons and 210-220 million tons, respectively.
This year, coal companies are operating in conditions of low export prices and high logistics costs, which has a negative impact on their work. Kuzbass coal miners, located far from eastern ports, reduced production this year by 5.6%, to 118.3 million tons, the regional coal industry ministry reported in August. Coal shipments in July decreased by 12.5%, to 13.9 million tons.
In its production report for the second quarter and first half of the year, Mechel reported that, despite sanctions, the company sent almost all of its coal products to third parties in the second quarter to Russian customers. In the second quarter, coal production fell by 2%, to 2.5 million tons. As a result of the sanctions, the company lost a number of assets, including a coal trader in one of the Asian countries.
What difficulties are companies facing
The International Energy Agency gives a negative forecast for Russian coal exports - a decrease of 16 million tons compared to last year. The International Energy Agency report says that Russia is experiencing difficulties due to US sanctions against large Russian coal producers, which, in turn, have signaled other importers that have trade relations with the United States to reduce coal purchases from Russia. Russian coal companies are also affected by problems with rail transportation in the east and export duties, which may limit their international competitiveness, given the price-sensitive customer base, the report says.
Sanctions are certainly a problem, but the main restraining factor is the capacity of the railways, says a Kommersant-Review source in the coal industry.
“I am sure that Russian companies with their coal quality will feel comfortable in this market. We can extract and sell a lot, the only question is delivery, but work is actively underway here,” Russian Energy Minister Sergei Tsivilev noted in an interview with TASS. According to him, the capacity of the railway in the North-West will increase to approximately 220 million tons by 2030 from the current 150 million tons per year, and in the Azov-Black Sea direction - to 152 million tons from 125 million tons.
Since December 22, 2023, the US Treasury has been authorized to impose sanctions against banks in other countries for assisting in transactions for sanctioned Russian entities and facilitating the supply of technology and equipment for the Russian military-industrial complex. There are no clear criteria for classifying dual-use products as a sanctioned group of goods, emphasizes Alexander Kotov.
Falling under the restrictions threatens foreign banks with the suspension of correspondent relations with American banks and the freezing of assets in their accounts. As a result, since February 2024, the number of cases of non-crediting of outgoing currency payments on the side of partner banks of Chinese suppliers, the prohibition of Chinese banks to open letters of credit for their subsidiaries in Russia, as well as the refusal of Chinese banks to accept letters of credit from Russian banks that are issued in favor of Chinese suppliers has increased.
In essence, the expert says, Russian mining and metallurgical enterprises are faced with excessive compliance from Chinese financial institutions, which leads to the impossibility of purchasing Chinese equipment needed both for current production processes and for the implementation of large investment projects.
The Russian-Chinese project for the development of the Zashulan coal deposit by the joint venture En+ and the Chinese CHN Energy has already encountered implementation problems. "There are problems with payment from the Chinese side, yuan and rubles are not perceived quite clearly. As a result, we are faced with certain problems and delays," says Vladimir Kolmogorov, CEO of En+ Group.
