After buying Russia’s discounted oil, India looks to buy its coal

India’s hunger for coal is growing. Even as the world shuns Russian goods, the Asian giant is setting its sights on Russian coal – after already buying up its discounted oil.

The European Commission last week proposed banning Russian coal as part of a new round of sanctions against Moscow for its invasion of Ukraine.

On the other hand, India’s coal imports from Russia jumped in March to highs not seen in more than two years, according to data from commodity intelligence firm Kpler.

Coal imports from Russia were at 1.04 million tonnes, the highest level since January 2020, Kpler’s Matthew Boyle, lead dry bulk analyst, told CNBC in an email. As much as two-thirds of March’s volume came from Russia’s Far East ports, likely after the war began in late February.

“Markets suspect that India and China may boost coal imports from Russia, offsetting some of the impact of a formalised EU ban on Russian coal imports,” Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank of Australia, said in a note last week.

Last week, India said it planned to double imports of Russian coking coal, used to make steel.

“The EU ban on Russian coal imports comes at a time when the international coal market is already very tight, with correspondingly high prices,” said Rystad Energy in a note. “A surge in coal demand in Asia, as countries try to minimize imports of expensive natural gas, has sent coal prices soaring in the past year.”

The main benchmark for coal imported into Europe — the API 2 — saw May prices surge to $300 per tonne last Tuesday, compared to $70 per tonne a year ago, according to Rystad Energy.

India’s coal crunch will likely benefit from a mega trade deal it signed with Australia on April 2, as the commodity qualifies for the lifting of tariffs.

Tariffs are set to be removed on more than 85% of Australian goods exported to India. That, however, will have its limitations as Australia won’t have sufficient coal to meet India’s growing needs, said analysts.

Coal accounts for around 70% of India’s electricity generation, according to the International Energy Agency’s 2021 India energy outlook report. The country is the world’s second-largest consumer and importer of coal, with China being the first.

Russia is the sixth-largest coal producer in the world. In 2020, 54% of the country’s coal exports went to Asia, while about 31% went to Organisation for Economic Co-operation and Development countries in Europe, according to the U.S. Energy Information Administration.