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This Financial Crisis Is Giving Coal An Unexpected Boost

This Financial Crisis Is Giving Coal An Unexpected Boost

 

Some good news and bad news for the coal market this week. From one of the key consuming centers on the planet: Europe.

Reuters reports that coal imports into Europe have been surging, from one particular source. The nearby coal mining superpower of Russia.

All told, Russian coal exports jumped a notable 8.8% during the January to November 2014 period, as compared to the previous year. Reaching a total of 140.2 million tons.

Related: Expanding Russia Issues Europe An Ultimatum

The development is surprising, given that coal markets in many other parts of the world have been flagging of late. But it turns out that one recent phenomenon is behind the surge in Russian output.

The collapse of the ruble.

Over the last six months, the ruble has dropped nearly 50% against the US dollar. Spurred by anti-Russian sanctions globally, and the recent fall in crude oil prices.

And that's a big lift for Russian exporters. Who sell products like coal in US dollars--and now receive twice as many rubles when they change USD back into their home currency.

In fact, analysts like Macquarie Bank estimate that the recent decline in the ruble may have reduced local-currency mine operating costs in Russia by as much as 40%. Giving producers here a big lift--and causing the surge in export output seen over the last year.

Related: How Much Punishment Can Russia’s Oil Industry Take?

This is obviously great news for Russian producers. And for European buyers, who now have a source of cheap and plentiful supply.

But it's a potential negative for coal miners and exporters in other parts of the world. Who now have to compete in global markets with the increasingly profitable production coming out of Russia. For example, coal arriving in European ports like Amsterdam is today selling at up to a $15 per ton discount as compared to product from Australia.

That means Russian producers could drag global prices even lower than might normally be expected. Watch for continuing data on Russian export growth--and prices in Europe, which may now become the lead metric for the worldwide coal market.

Here's to financial advantages,
Dave Forest

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