13.6% 22.1% 6.9%


Wind generation in Germany dropped by 13.6% in 2021 compared with 2020


Chinese net steam coal imports fell to 26.7mt over the Jan.-Feb period, down a significant 7.6mt or 22.1% y-o-y.


German nuclear generation was still at 61TWh in 2020 and in fact recovered to 65.3TWh in 2021 (up 6.9% y-o-y)


COAL OUTLOOK 2022: A 2-tier market emerges, as EU energy transition doubts persist


A 2-TIER COAL MARKET, CHINA TO TAKE ADVANTAGE OF CHEAP


RUSSIAN COAL At the time of writing in March 2022, Russian coal exports kept flowing although at below normal levels, despite the series of sanctions on Russian commodities exports announced by some market participants and governments.


We think they will continue to flow, at least to some extent in particular to China. This would indeed kill two birds with one stone:


• China’s challenge finding sufficient quantities of affordable coal and energy.


• Securing vital revenue for Russia, whose economy is getting increasingly cut off from the rest of the world.


Perret Associates estimate that Chinese net steam coal imports fell to 26.7mt over the Jan.-Feb period, down a significant 7.6mt or 22.1% y-o-y. This is only 3.4mt higher than December’s deliveries alone.


Importing significant quantities of high CV Russian coal would in fact enable China to persist with its ban of Australian coal. As it will be in the driving seat, as the only significant buyer of Russian coal, China could pretty much dictate its price. This would provide a significant advantage to the Chinese economy, which will benefit from much cheaper coal (but also gas and oil) prices than its main competitors in Asia.


Meanwhile, the much higher prices that the rest of the world might have to pay could remain in place for a long period, precisely because Russian coal and gas supply will be gradually excluded.


Chart 1: Chinese net steam coal imports, mt


We envisage that a 2-tier market, with autocracies on the one side and democracies on the other, might be taking shape faster than expected.


Still, there is a limit on how quickly Russia can gear up its exports to China. That said, given the fact that Russia’s railways have been notoriously under-performing in the West of the country and things have only got worse since the invasion of Ukraine, a shift in exports to the East might not be such a problem.


Russian steam coal exports to China were already at 45.6mt in 2021 (up from 26.8mt in 2019). There was an announcement a few weeks ago of a plan for Russia to export 100mtpa to China. Given the current conditions, we think this could be achieved within 3 years or so, with flows increasing steadily until then.


Chart 2: Chinese steam coal imports from Russia, mt


Source: Customs, Perret Associates


Source: Customs, Perret Associates


10 | ADMISI - The Ghost In The Machine | Q1 Edition 2022


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