No coal exports from Russia will cause massive deficit: Wood Mackenzie

Supply fears due to the ongoing conflict between Ukraine and Russia recently put upward pressure on coal prices. International prices for thermal or hard coal topped $420 per tonne before easing back to about $316 per tonne last week.

Thermal coal prices more than doubled from the end of February to March 10. Coal prices hit $420/tonne on March 10, up from $240 per tonne on February 23. On March 3, coal prices touched a fresh high of $400 per tonne. Coking coal or metallurgical coal doubled from $350 per tonne to $650 per tonne.

Indian steel companies import nearly 80 percent of their coking coal requirement.

Robin Griffin, vice president, Metals and Mining Research, Wood Mackenzie, and Partha Bhattacharya, former Chairman, Coal India, spoke exclusively with CNBC-TV18 on the state of global coal supplies, the impact of the spike in thermal coal & coking coal prices, whether Indian steel companies would be affected due to the price surge, and also on alternative sources for India to procure coal.

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Robin Griffin talked about the kind of scenario the world would face in the event of Russia's coal exports slipping. He said if there are no coal exports from Russia, there would be a massive deficit for the commodity for the next two years.

"To replace Russian coal supplies is impossible. It takes up to 2 years before the world replaces Russian coal supplies. This is assuming there would be no demand," Robin Griffin said on how long it would take to fully compensate for the missing Russian coal.

Speaking on how the potential supply crisis issue from Russia could be addressed, he said India could benefit if it buys Russian coal which is available at a discount.

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"Coal miners are struggling now to meet pent-up demand. We are still affected due to the Covid situation. These are extraordinarily tight markets. It is an issue for Indian steel makers since they buy material from Australia which is very tight now. If India gets Russian coal it would get benefitted since it is coming at a discount," Robin Griffin said.

He also emphasised that even though there are no specific sanctions on coal, broader sanctions on Russian banks are making the situation distressing and went on to say it is becoming difficult for buyers like China, Japan, Korea, or Taiwan to finalise deals.

"There are no direct sanctions against Russian coal. But, indirectly sanctions on Russian banks are making trade difficult," he said.

He also added, "No one actually knows for how long the war will last. And, how the effect of these sanctions is going to be. European companies are afraid to touch Russian coal. They are afraid their transactions would come to nothing if their ships are stopped in the future."

Robin Griffin explaining Russia's share of coal exports to the world, said Europe is a key destination for Russia’s coal exports.

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Robin Griffin said, "Russia supplies to the world about 15 percent of thermal and metallurgical coal. It is a significant exporter. In high-energy thermal coal, Russia is important as it has a much larger share. Europe is dependent on Russia. Its 70 percent coal comes from Russia. It is very difficult to replace Russia's supply quickly. We have enough difficulty now. If sanctions become worse, it is going to be impossible."

Coal India supplies the need for metallurgical coal in the country.

Partha Bhattacharya when asked to comment on whether there could be a rise in cement and steel prices as they are dependent on more expensive imported coal, said he does not see a lot of issues in the thermal coal segment.

To replace Russian coal supplies is impossible.

- Griffin

On India's thermal coal imports, he said cement companies will be importing more than what power companies import since Coal India's supplies to power companies are 90 percent whereas to cement is 60 percent.