Putin Faces Coal Crisis in Russia

Miami Herald

14 hours ago

One of Russia's top mining companies has become the first coal producer to get government aid in a deepening crisis for an industry hit hard by plummeting global demand and sanctions due to Vladimir Putin's war on Ukraine.
Mechel announced the government reprieve, although has warned the industry faces significant difficulties as producers brace for a slump in sales.
Russia is the world's sixth biggest producer of coal, but the industry in the country faces what has been described as the worst crisis since the 1990s.
Issac Levi from the Centre of Research on Energy and Clean Air (CREA) told Newsweek that state support is one of the only ways for Russian coal firms to avoid bankruptcy.
Newsweek has contacted Mechel for comment.
While a smaller contributor to GDP than oil and gas, Russia's coal industry is still a critical sector for dozens of single-industry towns where it employs hundreds of thousands of workers.
European sanctions for Putin's aggression included a ban on Russian coal imports in 2022, and other markets like China and India have not made up the shortfall.
Dwindling coal exports could be a political headache for Putin, especially amid other bad news for the wartime economy, such as a downturn in manufacturing and warnings by Russian officials about inflation and high interest rates.
Mechel's deputy finance director, Nelli Galeeva, said it had received a three-year deferral on tax and social security payments worth 13 billion rubles ($166 million).
The government support will also include saving an extra 500 million rubles ($6 million) per month through industry-wide assistance measures like deferred mineral extraction tax and social insurance payments, according to the agency Interfax, as cited by The Moscow Times.
Mechel chief executive Oleg Korzhov said the coal industry was in a "very difficult situation" and despite the government's help, his firm would cut shipments in 2025 by about a quarter compared with last year.
Levi, CREA's Europe-Russia policy and energy analysis team lead, told Newsweek Russia's coal industry problems partially stem from a sharp drop in global demand-especially from China, where steel production and coal prices had plunged.
Amplifying these problems are a strong ruble, low domestic and global coal prices and sanctions which have restricted market access, raised logistics costs, and limited financing, he said.
As the Russian coal sector continues to struggle, state support seems to be one of the few reasons many companies can survive and avoid bankruptcy, he added.
The Spiridonovskaya mine in Siberia's Kemerovo region suspended operations last month due to a lack of financing, according to the regional coal industry ministry.
It comes as business activity in Russia's manufacturing sector had its biggest drop since the start of the war, according to S&P Global. It said the Purchasing Managers' Index (PMI) for Russian manufacturing dropping from 50.2 in May to 47.5, where a reading below 50 indicates a contraction.
Meanwhile, Russian officials have warned about Russia's economy, such as German Gref, CEO of the country's biggest bank Sberbank, who said high inflation and the high key interest rate could not be solved quickly.
Central Bank Governor Elvira Nabiullina and economy minister Maxim Reshetnikov also issued warnings- the former that the conditions for growth were "exhausted", with the latter saying the country was on the "brink of recession."
Mechel's deputy finance director Nelli Galeeva, per Interfax: "We received an installment plan for the payment of taxes, fees, insurance payments of more than 13 billion rubles...we will use the released cash flow to support our operating activities."
Mechel chief executive Oleg Korzhov: "Nearly all coal producers are facing extremely difficult conditions...at the current exchange rate, selling coal is unprofitable."
Isaac Levi, CREA's Europe-Russia policy and energy analysis team lead, to Newsweek: "Industry-wide, the Russian coal sector is struggling, and state support seems to be one of the few reasons many companies can survive and avoid bankruptcy."
Levi said if coal production in Russia is curtailed further and interest rates decline-raising the dollar exchange rate-the financial burden on coal firms may ease.
This may potentially stabilize coal prices, but the country's export prospects will largely hinge on demand from China, he added. "Any fluctuation in Chinese import activity could significantly impact the industry's recovery and pricing stability."
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