How Asia's coking coal trade dynamics transformed post Russia-Ukraine war?

The Russia-Ukraine conflict has altered the seaborne trade dynamics of metallurgical coal. With more of Russian coal finding its way to China and India, countries like Japan and South Korea are limiting their Russian coal usage amid western sanctions on Russia.

It is interesting to analyse the trade flow of coking coal (including PCI coal) which has changed in the last eight months in the key Asian countries of India, China, Japan, and South Korea, as these countries contribute to 90% of world's crude steel production.

China's imports from Russia surge

China's coking coal imports in January-August 2022 increased by 26% y-o-y to 38.2 million tonnes (mnt). The country's crude steel output, however, fell by 6% during the period at 693 mnt.

While China meets the majority of its coking coal requirement through domestic sources, the rise in the country's imports can be attributed to cheaper Russian coal. China's metallurgical coal imports from Russia surged 81% y-o-y at 12.3 mnt.

Interestingly, so far in 2022, Russia's share in China's coking coal imports increased to 33% against 20% last year. Both countries had set up a yuan (RMB)-ruble payment mechanism only after a month of the commencement of the Ukraine invasion.

China's imports from Mongolia have also risen by 32% to 13.1 mnt during said period, but from the US coal imports have fallen 36% y-o-y to 3.67 mnt.

India's Russia import up, Australian records falls

India's imports from Russia surged 94% as Russian coal was offered at a discount. Although the majority of Indian steel mills are avoiding booking Russian coking coal, only JSW Steel and a few traders are heard bringing in cargoes.

JSW Steel is bringing Russian coking coal to be used in its Corex smelting process thus replacing high-CV Australian thermal coal, which is trading at above $400/t levels since the past few months.

India's imports from the US more than doubled this year at 4.89 mnt, whereas imports from Australia fell 20% during the period due to supply disruptions and its price surge.

Overall, India's coking coal imports fell marginally by 3% during January-August, while its crude steel production rose by 7% y-o-y.

Colombian, Indonesian coal make way to Japan

Japan's coking coal imports from traditional sources, Australia and the US, rose by 3% and 30%, respectively, during January-August this year, due to long-term contracts. However, Japan's sourcing of Indonesian and Colombian coking coal stood at 1.09 mnt and 0.25 mnt, respectively, during the period.

Japan restricted importing coal from Russia, with shipments falling by 24% to 1.37 mnt in January-August.

The country's total coking coal imports rose by 5% to 30.1 mnt in January-August. However, its crude steel output fell by 5% y-o-y to 61 mnt. The decline was a result of bearish steel demand especially in Europe, Japan's key export destination.

South Korea's imports from Russia drop

South Korea's coking coal imports from traditional sources, Australia and Canada, rose by 32% and 16%, respectively. However, from Russia shipments fell by 63% at 0.87 mnt after the Korean government imposed sanctions on Russian coal imports post war.

Total coking coal imports by South Korea increased by 15% y-o-y during January-August to 14.8 mnt, while its crude steel production fell by 3% to 46 mnt.

Outlook

Given bearish steel demand, coking coal imports by the major steel-producing countries are expected to fall in the near term. But the changed trade dynamics are here to stay until Europe removes sanctions on Russian coal.