Chinese coal importers are holding back purchasing from Russia upon the mounting sanctions being imposed on Moscow. The buyers struggle to secure loans from state banks and trades have been suspended for the time being.
Along with oil, coal prices have shot up this week after the Russian invasion. Newcastle coal futures skyrocketed to a record high of 300 dollars per tonne on Tuesday, March 1, and are now up almost 90% since the beginning of 2022 when it was only 157 dollars per ton.
China is not heavily reliant on coal imports. It provides nearly 90% of domestic coal demand. Among 10% of imported coal, around 50 million tons, or 14%, of coal worth 7.4 billion dollars came from Russia last year, making it Russia’s largest coal buyer.
Adequate domestic coal supplies and an impending seasonal decline in heating use mean Chinese buyers can deal with the coal import disruption for now. But in the long run, Chinese buyers need to work on solutions to fulfill any continued supply gap from Russia.
Some lenders advise state-owned firms to stall Russian coal purchases. Most Chinese banks have stopped issuing letters of credit following the SWIFT sanctions which makes it impossible to complete transactions of imported coal contracts in dollars.
While some of the buyers are working with Russian exporters to pay in Chinese yuan, others are waiting for clearer policy signals from Beijing on whether they can resume the trades.