Corporates, Sustainable development


Metals & Mining



  • Although coal continues to be the world’s second most important fuel for generating energy, its share has been declining steadily since 2014. This is due to initiatives of major economies aimed at reducing greenhouse gas emissions. The International Energy Agency (IEA) estimates that coal consumption declined by 7% in 2020 year-on-year as a result of falling electricity consumption. Amid 0.9% growth in demand for renewable energy sources (RES), the decline in demand for coal during the coronavirus pandemic looks significant.
  • The growing global popularity of ESG will only accelerate the move away from solid hydrocarbons. The ESG policies of many major investment funds and banks require them to include clauses in their investment policy statements which rule out investing in projects related to the extraction of solid hydrocarbons. In the future this will lead to higher financing costs for existing coalfields, and may mean the end of development of new fields.
  • Is it the end of the coal era? No, not yet. Coal is especially prevalent (47%) in the energy balance of fast growing economies in the Asia-Pacific Region (APR), which account for 44% of global energy consumption. Coal also occupies a major share in electricity generation in regions such as Africa (22%), the CIS (14%), and the EU (13%). Taking into account a number of difficulties, it can be assumed that coal will continue to serve as one of the main energy sources in the medium term (5–10 years).
  • According to BP’s data as of the end of 2019, Russia has the world’s second largest (15%) coal reserves after the US. At the current rate of extraction, Russia’s coal reserves will last for 370 years. But even if reserves, the production and transportation of which are profitable, are sufficient for only a few decades, the state’s policy of supporting the coal industry with regard to developing railroad and port infrastructure is justified as the industry provides a significant number of jobs and is a substantial source of export revenues for the country.
  • Coal price volatility is the key risk factor. Long periods of low prices are the main risk factor for developing new potential coalfields, especially those where it is essential to develop transport and terminal infrastructure. However, on average Russian coal companies are managing to retain their competitive positions in terms of production price.

Coal’s share in the global energy balance is declining steadily

Coal consumption in global energy production decreased by 0.6% y-o-y in 2019, while its share in the global energy balance declined by 0.6 percentage points to 27%, the lowest share in the past 16 years. The significance of coal in the context of global energy production continues to decline as a result of a doctrine adopted by many countries, mainly in Europe, which seeks to cut greenhouse gas emissions and increase the share of renewables.

Figure 1. Structure of global energy production by fuel type

Source: BP

According to the IEA’s assessments, global consumption of coal decreased by 7% y-o-y in 2020 due to reduced energy consumption. Amid 0.9% growth in demand for RES, the depth of decline in demand for coal during this period looks significant.

The programs of a number of countries, which envisage replacing coal power generation with more environmentally friendly power plants operating on gas or RES, will lead to the closure of coal power plants with a total capacity of 275 GW throughout the world by 2025. Out of this, 100 GW is in the US and 75 GW is in the EU.

Furthermore, in the past, traditional coal or gas-fired power plants had a clear advantage in terms of the cost of construction compared to RES power plants, but over time, taking into account the development and improvement of technologies for the construction of green power units, this advantage has become not so tangible. In addition, some types of RES power plants cost a lot less to operate than their coal-fired counterparts.

Table 1. Unit costs of construction and maintenance of power plants in the EU in 2018


Construction costs


Repair and maintenance costs


Cost of electricity


Nuclear power plants




Coal power plants




Gas power plants




Solar panels




Onshore wind stations




Offshore wind stations




Source: IEA

Therefore, it is only a matter of time before coal, which emits the most СО2, is replaced by greener sources of energy.

ESG will accelerate the rejection of coal

Investing in the development of coalfields is becoming irrelevant. Responsible investment, which is gaining popularity throughout the world, prevents many global investment funds and banks from investing funds in coal projects. This applies not only to new projects, but also to purchasing debt instruments of existing companies. In the future, this will lead to higher capital financing costs for coal companies and could possibly mean the end of development of new fields. It should be noted that in addition to coal companies, related enterprises will also suffer, such as those that are engaged in the transportation, transshipment and storage of coal. At the end of 2020, Russian Railways (AAA(RU), outlook Stable) placed RUB 25 bln of green bonds; not all investors were able to acquire them due to new ecological requirements. According to the CEO of Russian Railways, the company received a note from the international investment fund PIMCO (USD 2 tln under management) explaining that it could not invest in the company’s bonds because its cargo turnover is largely formed by the transportation of coal.

Coal companies, however, are taking action and attempting to adopt to ESG requirements. For example, major Russian thermal coal producer SUEK is investing in the construction of dust and wind screens at Murmansk Port, the main transshipment site for export coal. The company is placing special focus on developing high-energy coalfields and coal enrichment in order to minimize dust and greenhouse gas emissions during the transportation and burning of this fuel. SUEK is also carrying out major soil reclamation projects, including to restore the relief and the soil layer, leveling refuse heaps, planting trees, landscaping and greenspace expansion. In addition, the company is investing in modernizing its power generating assets to reduce CO2 emissions. These measures undoubtedly make the coal business more environmentally friendly, but the impact is not significant enough to convince supporters of decarbonization to change their attitude to this type of fuel.

Figure 2. СО2 emissions by type of energy source

Source: Enerdata

Coal continues to be one of the main energy sources

Coal is one of the key types of fuel for producing energy in developing countries, in particular China and India. As the APR countries account for 44% of global energy consumption, and the region itself is 47% dependent on coal as the primary energy source, demand for coal should be stable for at least the next decade. In China alone, coal-fired power units with a total capacity of 250 GW are currently being constructed or planned to be constructed, despite the leadership of the country announcing a strategy to gradually move away from coal in favor of more environmentally friendly types of fuel.

China has one of the largest reserves of coal in the world: around 1.1 tln t as of the end of 2019 (13.2% of proven global reserves). The country is also the largest global producer (47% of global production, or 3.8 bln t in 2019) and consumer of coal (around 52% of global consumption). Given the proximity of China’s largest coal basins to its industrially developed regions, it is quite obvious why the country is forced to rely on coal-fired power generation.

China currently covers almost all of its need for coal. Based on current production, according to BP, China’s proven coal reserves will be sufficient for 37 years, which in the long term means that the country will be heavily dependent on imports, provided that it does not fundamentally revise its energy strategy in favor of alternative sources of electricity.

In ACRA’s opinion, taking into account the exhaustion of its coal reserves in the future, China is unlikely to continue rely on coal generation, and even less so on imported coal. It is highly likely that the country will start buying more natural and liquefied gas and prioritize the use of renewables. Consequently, the Chinese gas market will become strategically important for Russia. Halfway through 2020, PJSC Gazprom signed an agreement with its Chinese partners to increase the supply of gas by 6 bln cubic meters (to 44 bln cubic meters a year), and in the foreseeable future, according to the chairman of the company’s management committee, annual gas exports to China will exceed 130 bln cubic meters.

Unlike China, which is currently able to fully cover its need for coal, major electricity consumers such as Japan, India and the EU countries have to import it. ACRA believes that, despite the active policy of European countries to introduce alternative energy sources, it will be very difficult for them to completely abandon coal in the medium term (5–10 years).

Figure 7. Coal importing countries

Source: BP

The Russian coal industry

Russia has the world’s second largest coal reserves after the US. According to BP, at the current rate of extraction (440 mln t a year), Russia’s coal reserves (162 bln t) will last for 370 years. The Russian coal industry was one of the first sectors of the country’s fuel and energy complex to go from being subsidized by the state to completely adopting to market conditions, after restructuring, renewing fixed assets and boosting productivity. Currently the sector is largely made up of private companies that mine and supply coal to both the domestic market for Russian power engineers and metallurgists, and to the markets of Europe, Asia, and the Middle East. The sector’s companies use their own and borrowed funds to invest in the development and expansion of coal production, as well as in the construction of coal transshipment terminals.

Largely due to the emergence of private companies in the sector over the past decade the volume of coal production grew by more than 1.3 times and around 300 mln t of new mining capacity was deployed. The coal industry currently includes 58 mines and 133 open-pit mines, half of which were opened after 2000.  The new enterprises are equipped with modern production equipment and employ the latest coal mining technologies. Thus, 42 mines, or 76% of the total number of working mines operate according to the advanced “mine – longwall face” technology.

Figure 8. Russia’s largest coal mining holdings in 2019, mln t


Russia is rich in deposits of both thermal coal and coking coal used in metallurgy. At the same time, the country has deposits of high-quality coking coal of rare grades (for example, in Yakutia). However, in terms of production and export volumes, thermal coal is undoubtedly the leader in Russia.

Coal plays an important role in the Russian economy

The Russian coal industry employs 150,000 people, and about half a million more jobs are ensured by supporting related industries. Coal has become the main cargo transported by Russian Railways, with a 44% share in the cargo turnover of this carrier.

Export revenues from the sale of Russian coal account for about 4% of total proceeds from the export of goods.

Figure 11. Russian export proceeds by commodity in 2019, USD mln

Source: FTS of Russia

Coal accounts for 12% of the total energy generated in the country. In addition, this type of fuel is assigned an important role in the Energy Strategy of the Russian Federation for the period up to 2035, approved by Russian Government Decree No. 1523-r dated June 9, 2020.

Figure 12. Energy balance of Russia by type of fuel in 2019

Source: BP

According to the Program for the Development of the Coal Industry of Russia for the Period up to 2035 approved by Russian Government Decree No. 1582-r dated June 13, 2020, two scenarios for the industry are possible: conservative and optimistic.

Figure 13. Coal production in Russia, mln t

Source: BP, Russian Government Decree No. 1582-r dated June 13, 202

The conservative scenario envisages a coal production volume of 485 mln t in 2035, including 140 mln t of coking coal and 345 mln t of thermal coal. At the same time, deliveries of coal to the domestic market will amount to 170 mln t (40% of the total supply), for export — 259 mln t (60%). The conservative scenario is based on a projected decrease in coal consumption in the utilities sector, stagnation in coal consumption in the Russian electric power industry (87 mln t in 2035), the minimum level of projected prices in the international thermal coal market, and increasing costs of coal production and export.

The optimistic scenario, in turn, assumes that in 2035, the volume of coal production will amount to 668 mln t, including 150 mln t of coking coal and 518 mln t of thermal coal. At the same time, supplies of coal products to the domestic market will amount to 196 mln t (33.3% of the total supply), for export — 392 mln t. In addition, the optimistic scenario envisages the maximum coal consumption by the Russian electric power industry at 120 mln t in 2035, as well as more favorable world market prices for thermal coal and the forecasted development of the Eastern Operating Domain in accordance with the Long-Term Development Program of Russian Railways.

Development of transport and seaport infrastructure in Russia

Over the past 15 years, the export of Russian coal has been steadily growing, regardless of price dynamics in world markets. The bulk of exports go through the Baltic and Far Eastern seaports; taking into account the pricing environment, the eastern direction has been the most priority for the last few years, and the relevant port and railroad infrastructure has been actively developing, accordingly. Currently, bottlenecks on the BAM and Trans-Siberian railroads are being unblocked by Russian Railways; and the construction of new and expansion of existing coal transshipment terminals in the Far East are in full swing.

Figure 14. Volume of coal transshipped in Russian seaports, mln t

Source: Morstroytekhnologiya LLC

The largest coal terminals in the country are owned by coal companies. In 2019, the ten largest terminals accounted for 70% of the total coal transshipment volume.

Figure 15. The largest coal transshipment seaports in Russia, mln t

Source: Morstroytekhnologiya LLC

Far Eastern projects. Vostochny Port JSC, owned by CC Kuzbassrazrezugol JSC, is the largest coal terminal in Russia with a capacity of about 50 Mtpa of coal. However, the terminal’s capacities are used by 50% so far (in 2019, only 25.5 mln t of coal were transshipped).

As for new projects, it is planned to build a new coal terminal Aurora in Vladivostok, with a capacity of 25 Mtpa; the project is being implemented by COALSTAR LLC. Furthermore, CC VostokUgol LLC and HC SDS-Ugol JSC are planning to build their own coal terminals in Vladivostok, each with a capacity of 20 Mtpa. If the declared plans for the construction of the terminals are implemented, then by 2024, the total coal transshipment capacity in Primorye will increase from the current 60 Mtpa to 180 Mtpa.

In March 2020, the first stage of a specialized coal transshipment complex owned by VaninoTransUgol JSC was completed in the port of Vanino (Muchke Bay), with a capacity of 12 Mtpa. After the completion of the second stage expected in 2022, the capacity will double. In Vanino, work is also underway to increase the throughput capacity of Daltransugol JSC (owned by SUEK JSC) from 24 to 40 Mtpa of coal. In the next five years, another terminal should appear in the port of Vanino as part of a comprehensive project for the development of the Elegest coal deposit, which is being implemented by TEPK JSC. Taking into account all the announced projects, the total transshipment capacity at the port of Vanino will be increased from 25 Mtpa up to about 70 Mtpa.

Projects in the Baltic. Compared to eastern routes, the new coal terminals in the Baltic are not so large, which indicates that this route is less popular for coal companies. The boom in launching new projects in the Baltic came in 2017–2018, when coal prices were quite high. Many terminals managed to launch the first phase, i.e. transshipment using a universal or combined technology, and planned to build specialized terminals of greater capacity. So far, no one has announced the closure of projects; however, investors are in no hurry with the launch of the second stages of specialized coal terminals, since coal prices in western markets are not optimistic. The main projects in the Baltic are the ports of Ust-Luga, Vysotsk, Primorsk and Murmansk. If all these projects are implemented, the installed aggregate coal transshipment capacity in the Baltic will increase from 30 Mtpa to more than 70 Mtpa.

Projects in the south. The number of projects in southern Russia is less than that in the Baltic. In 2019, OTEKO-Portservice LLC launched a bulk cargo terminal with a throughput capacity of 25 Mtpa, which may be doubled, if needed. In 2019, the seaport’s cargo turnover amounted to mere 1.8 mln t of coal.

Another large project in the south is the dry cargo area of the Taman port. Initially, MC Kuzbassrazrezugol JSC and SUEK JSC planned to build two coal terminals there. However, amid falling coal prices, investors revised their plans, and now, the construction of these terminals is not on the agenda.

Volatility of coal prices is the key risk factor

High volatility of world coal prices is the key risk factor for Russian coal companies, as the profitability of exports depends on coal prices and, accordingly, the ability to invest in their port terminals. In the period from 2015 to 2020, the formation of the latest cycle was observed, within which thermal coal prices varied from USD 42/t (FOB Riga) to USD 95/t. The volatility of prices was mainly due to the revision by many countries of their energy doctrines in favor of renewable energy sources, as well as weather conditions and accidents at the largest coal mining assets. Generally, weather conditions and supply disruptions have a tangible impact on coal prices in the short term, whereas the price effect of ditching coal in favor of cleaner technologies will manifest itself in the long term. For example, the warm winter in 2019 and the decline in business activity in 2020 amid the coronavirus pandemic triggered a decline in coal prices. However, due to cooler weather, especially in Europe, the opposite situation has been observed recently: the demand for coal at power plants has been growing, which in turn contributes to the recovery of prices.

Figure 16. Coal prices, USD/t

Source: Metal Expert

In ACRA’s opinion, in the long term, coal prices will be determined, on the one hand, by the global decline in demand, and, on the other, by the average coal production cost in the main coal exporting countries. The latter is likely to have an upward trend over time due to inflation and the depletion of low-cost coal reserves.

Figure 17. Coal price FOB for key suppliers in the Asia-Pacific market

Sources: IEA, IPEM

As seen in Fig. 17, Russian thermal coal exporters are quite competitive in the world market in terms of production costs (the first quartile of the cost curve), even taking into account that distances from the main production sites, including the Kemerovo Region — Kuzbass, the Republic of Khakassia, the Republic of Sakha (Yakutia), and the Krasnoyarsk Krai, to destinations are rather long both in the east and in the west. Taking into account that the main volume of thermal coal supplies are sold in the world market at the cost of production (starting from USD 45–50/t), it can be assumed that this level will dominate world prices. Such prices, obviously, will be uncomfortable for Russian coal companies, since they will operate with almost zero profitability. At the same time, the above price range will be even less suitable for producers with higher production costs, especially if the period of low prices is protracted. Under these circumstances, they will be forced to suspend coal supplies to the world market, which will decrease the offer and, consequently, allow prices to recover.

Figure 18. EBITDA margin of companies (%) and average coal prices (USD/t)

Sources: Metal Expert, companies’ data, ACRA

Coking coal producers, including EVRAZ plc and Mechel PAO, are in a much more advantageous position compared to thermal coal exporters. This is because the selling price of coking coal is significantly higher than that of thermal coal, while productions costs are comparable, which ensures higher profitability.

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Ilya Makarov
Director, Corporate Ratings Group
+7 (495) 139 04 80, ext. 220
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