South Korea’s federal government has asked its state-owned power generating companies, or gencos, to curtail coal imports from Russia, mainly through spot market deals, several sources told S&P Global Commodity Insights.
The development, which was an outcome of a recent meeting between government officials and power companies, may limit Russian fuel intake and in turn create higher spot demand for Australian and South African coal, a replacement for the high-CV coal South Korea usually imports from Russia.
According to sources, the power generating companies that participated in the meeting included Korea Midland Power Co. Ltd, Korea East-West Power Co. Ltd, Korea South-East Power Co. Ltd, and Korea Western Power Co. Ltd. Two traders based in India and South Korea confirmed the development and said the companies were asked to keep Russian coal imports within the previous year’s level of 26.53 million mt.
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Platts, part of S&P Global, assessed FOB Russia Pacific 6,300 kcal/kg GAR price at $105/mt Sept. 8, down from $147/mt from the year-ago period. As per customs data, South Korea imported 17.38 million mt from Russia in the January-July 2023 period. However, over May-July, imports jumped to 8.29 million mt, up nearly 39% on the year, according to customs data.
While the government aims to prevent the import of spot cargoes from Russia by state-run power plants, there is not much restriction on procurements through long-term contracts, the Indonesian trader said, adding that the country’s independent power producers were not put under any such conditions and remained free to buy Russian coal through bilateral long-term deals as well as spot trades.
South Korea’s POSCO International Corporation and Korea Southern Power Co. Ltd. issued tenders to import 174,000 mt coal over October-November period of 2023 and 480,000 mt during 2023-25 respectively, S&P Global recently reported. Both companies mentioned in their tender document they will not source any coal from Russia.
State-run power generating companies could not be reached for comment regarding the latest development, while a ministry official could not be immediately contacted.
Rising pressure on Russian exports
Russian coal became lucrative to Asian buyers post the Russia-Ukraine war due to significant discounts after Europe imposed sanctions on the former. While South Korea never took an official position in terms of sanctions on Russia, the country’s state-owned gencos were heard to have been asked to limit trade post the European sanction. But imports from Russia in 2022 rose to 26.53 million mt, from 21.95 million mt in 2021, as buyers looked to cash in on the price advantage, according to the country’s customs data.
According to Platts data, the FOB Russia Pacific 6,300 kcal/kg GAR price, which was at $191.63/mt just before the war in February 2022, fell to an average of $166.96/mt over March-December 2022, and averaged $122.15/mt in the first six months of 2023. S&P Global recently reported that many buyers are finding alternative sources of coal and some are returning to the sellers from whom they imported seaborne coal before the Ukraine-Russia conflict disrupted trade flows.
Russia’s total coal exports rose 11.9% on the year to 192.6 million mt in 2022, according to data from S&P Global Commodities at Sea, but the pace slowed down to 7.4% on the year in the first half of 2023. The potential loss of the South Korean market would likely add pressure on Russian coal exporters at a time when Russian coal is gradually losing its price advantage over high-CV cargoes originating from other countries such as Australia and South Africa.