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Weak ruble boosts Russian coal exports but does little for Panamax freight market

Increased exports of Russian coal to Europe, boosted by a weak ruble, may do little to help the overall Panamax freight market in the North Atlantic, which is plagued by a seasonal decline in demand.

The Russian ruble has dropped dramatically in the last 12 months, which has led to significantly lower costs for Russian producers making Russia coal exports into Europe much more competitive, sources said. In June 2014, the ruble was worth $0.029 and the average monthly price of ex-Russian coal was assessed by Platts at $69.88/mt. In May 2015, the ruble had dropped to $0.0197 and the coal price had also fallen to $54.55/mt.

Russian producers are producing some of the cheapest coal in the market with the weekly 90-day price of Russian Baltic coal assessed by Platts at $54.10/mt on May 29. The nearest competitor on price was ex-Colombian coal and the weekly 90-day FOB price was assessed at $53.50/mt on May 29. The Colombian FOB price is lower, but when freight costs are factored in, Russian coal is cheaper, sources said.

However, North Atlantic Panamax rates are very low because of weak demand on trans-Atlantic routes. Even though interest is rising for coal from Russia, overall demand in Northern Europe remains largely unchanged, sources said. Such is the volume of excess tonnage in the Panamax dry bulk market that the rising volume of ex-Russian coal stems has made little difference to freight rates. The average monthly rate on the coal route from Ventspils, Latvia to Rotterdam, basis 70,000 mt, was assessed at $5/mt in June 2014, against an average monthly price in May 2015 of $5.50/mt, a small rise of 50 cents.

Industry sources said the North Atlantic freight market is currently being supported by high front-haul grain demand from Brazil to China and the rest of Asia, but this business usually peaks in June before exports decline.

“The next big push is unlikely to come until Q4 as traditionally the summer is fallow with little demand for coal from end-users, I wouldn’t like to see what a fallow period looks like in the current market though,” a UK-based shipbroker said.
Source: Platts