By MuyuXu, Chen Aizhu

BEIJING/SINGAPORE Reuters – Chinese traders have cut back their imports of Russian coal because they are unable to obtain financing from banks that fear sanctions following Russia’s invasion of Ukraine. These early indications indicate that there is a disruption of supplies from Russia’s third-largest seller of coal.

Prices of coal from South Africa, Australia, and Indonesia rose this week. On Monday, the benchmark Newcastle coal hit an all-time high of $274.50/tonne. That’s a 15% jump in just a few days after Russia launched what it called a “special military action” in Ukraine.

A related graphic: Key global coal prices: https://fingfx.thomsonreuters.com/gfx/ce/movandlonpa/GlobalCoalPricesMar2022.png

China is Russia’s biggest coal buyer. It imported more than 50,000,000 tonnes of coal, worth $7.4billion last year. This was via rail from Russia’s Far East and by sea. China imported 15% more coal from Russia than Indonesia, and Russia was the second-largest supplier.

Following the SWIFT Sanctions, many banks are no longer issuing letters de crédit. A majority of contracts are in dollars, so we don’t have any other option but to pay the bill,” stated a Chinese trader who deals with Russian coal.

A related graphic: Russia coal exports by destination: https://fingfx.thomsonreuters.com/gfx/ce/jnvwebxravw/RussiaCoalExports2021.png

Other trader are currently in negotiations with Russian exporters regarding the possibility of paying for their first order with Chinese currency.

A second trader who regularly imports Russian coal via railroad into northeast China said, “We’re still waiting for their reply, but trades are on hold for the moment.”

The United States of America and its allies attempted to prevent certain Russian banks access to SWIFT, an international payment system that allows for the majority of financial flows worldwide.

Some buyers may eventually be able to use China’s offshore clearing and settlement system known as CIPS. However, China has been reducing its overall coal imports since last week.

China’s large coal stocks and the upcoming seasonal drop in its heating use mean that imports can be halted for now.

Buyers should be concerned about a prolonged Russian supply shortage. China has imposed export restrictions and a ban on Australian coal imports.

Shipping costs have risen to a point that is worrying. They are significantly higher for South Africa and Indonesia than they are from Far East Russia.

A related graphic: Chinese coal imports face steeper shipping costs if they want to replace Russian cargoes: https://fingfx.thomsonreuters.com/gfx/ce/klvykbdjrvg/CoaltoChinaRates.png

According to a Singapore-based trader: “Global coal prices won’t fall in the short term due to the high freight rate,” he said. The reason for this was partly because of the increased costs associated with freight, which are already rising due to economic recovery and supply chain bottlenecks.