Over the past few years, China has been struggling to improve its environmental situation. The country is reforming the metallurgical, coal and energy industries. Since 2015, there has been a gradual reduction in metallurgical capacity. One of the key points of the environmental program is the transfer of housing and communal services and energy enterprises from coal to gas.

And recently, an expanded three-year program was approved, providing for a reduction in coal consumption in 82 cities of China by 5–10% by 2020 relative to the 2016 level. The reduction in energy coal consumption in China will lead to a significant reduction in their prices by 2020–2021, predicts the director of the center for economic forecasting of Gazprombank Airat Khalikov.

Average prices for high-quality coal in the first half of 2018 amounted to $103 per 1 ton. After China reduces consumption, they will decrease by almost a third - to $70-80 per 1 ton. But China purchases in larger volumes lower-quality coal of average calorific value, the price of which may fall to $52-69 per ton, Khalikov predicts.

“China’s economy provides half of the world’s coal production and consumption, and environmental reforms cannot but have a significant impact on coal prices on the world market and on the distribution of export flows,” Khalikov points out.

Russia exports almost half of the thermal coal produced (143 million out of 305 million tons in 2017, according to Metal Expert). The main export destinations in Asia are Korea (13%), Japan (9.6%) and China (10.5%). At the same time, we are talking about the export of high-quality, expensive coal, Khalikov emphasizes.

The expert points out that China also purchases low-quality coal in larger quantities. Their main supplier is Indonesia. First of all, purchases of this particular category of raw materials will be reduced, Khalikov believes.

But Russian coal companies will also get it, says Khalikov. The era of super profits will end. Coal companies will operate with minimal profitability, the expert predicts. It is more difficult to say whether it will be possible to redistribute the released volumes of expensive coal, he emphasizes: “India is increasing its own energy coal production in accordance with the plan for commissioning coal power plants, i.e. by 2020–2021. this market can become balanced; in developed Asian economies – Japan and Korea – coal consumption in the energy sector is decreasing.”

ACRA analyst Maxim Khudalov agrees with him. He believes that, in general, it is possible to add a certain amount of coal to the Korean and Japanese markets, but only if we win the competition with Indonesian and Australian producers. In his opinion, a significant reduction in coal imports by China could result in Russian companies being forced to reduce underground mining, as it will no longer be profitable.

The largest producer and exporter of thermal coal in Russia is SUEK . Its share accounts for 26% of Russian production - 109.7 million tons in 2017. The company exports more than half of its coal, and most of it (29.8%, 32.7 million tons) to the countries of the Asia-Pacific region, it follows from company report. Mechel . produces and exports mainly coking coal It accounts for 1.6% of Russian thermal coal production.

Corrected version. The forecast for coal prices and Mechel's share in Russian thermal coal production have been updated.

China threatens to bring down global coal prices