Russia’s coal sector is on the brink of a crisis, with high borrowing costs and sanctions taking their toll, exacerbated by dwindling demand from China and plummeting prices. Only half of Russia’s coal companies were profitable in 2024, as reported by the Federal Statistics Service, and the outlook continues to worsen.
Mechel PJSC, a leading miner, announced on June 30 that it might slash sales by 25% this year, having already reduced production. Some Siberian mines have already ceased operations. A critical challenge for the industry is securing equipment due to three years of technological sanctions. Miners are forced into “cannibalisation” – stripping parts from multiple sites to create one operational unit at a single facility to minimise production costs while reducing output.
These companies are grappling with borrowing costs surpassing 20%, which further erodes profitability, while coal prices have sunk to multi-year lows amid China’s reduced appetite for the resource.
Natalya Zubarevich, an expert on Russian regions at Moscow State University, told Bloomberg: “The coal industry faces what you’d call a perfect storm: all problems have converged at once.”
Steel manufacturer Severstal PJSC has already cautioned that a decrease in domestic demand and construction could force some steel producers to stop production.
Prior to 2022, the coal sector heavily depended on mining equipment from Europe, the US and Japan. However, technological restrictions imposed on Russia since the onset of the war have cut off access to these vital resources.
The EU, which previously accounted for about half of Russia’s coal exports, stopped shipments in 2022, forcing Russian firms to look to China. This year, however, demand for the fuel in Biejing has decreased, piling on more pressure.
Despite coal making up less than 0.5% of Russia’s gross domestic product, it is responsible for over 15% of the country’s electricity generation.
The Kemerovo region, Russia’s largest coal-producing area, reported a 20% budget deficit in the first quarter due to a decrease in tax revenue from profits, according to Zubarevich.
If the situation continues, Russian coal producers’ losses could more than double this year to as much as 350 billion rubles (£3.3 billion), Interfax news service reported earlier this month, citing Energy Ministry data.