Analysts have announced consolidation of the coal market due to the crisis.

Consolidation of the coal market may occur within the next year or year and a half due to the high financial pressure on the industry amid its crisis, according to the National Coal Commission's forecast. However, high lending rates could hinder this.

Analysts expect the coal market to consolidate through acquisitions or reorganizations amid heightened financial pressure over the next eighteen months. As a result, smaller companies will be acquired by larger entities. This is the conclusion reached by analysts at the National Coal Company (NKR), according to a relevant review.

There are currently approximately 180 coal companies operating in RUSSIA, according to the National Coal Commission. According to Rosstat, the industry ended 2024 with a record loss of 113 billion rubles due to the crisis resulting from the loss of some traditional sales markets after 2022 (primarily the EU , where the share of exports to European countries was 25%) and the fall in solid fuel prices. According to the National Coal Commission, the EXPORT price of a ton of thermal coal in 2022 was $148–192, depending on the shipping port, while by the end of 2024 it would be $72–106. By comparison, in 2020, which was also a loss-making year for producers, profits amounted to 38 billion rubles.

Medium-sized and small thermal coal producers are in the "most challenging" situation, facing a sharp decline in export revenue, analysts note. In new markets—since August 2022, following the EU's refusal to accept Russian coal, supplies have shifted to CHINA (40-45% of exports in 2023-2024), India (10-12%), and Turkey (10-15%)—Russian coal producers are forced to "reconquer their place in the sun and manipulate prices." Maintaining and developing exports is "critically important" for maintaining business profitability, as the industry's financial performance is directly dependent on export activity and the global market environment.

High interest rates in the economy and limited access to long-term funds, in turn, have a greater impact on medium-sized businesses, while targeted government support measures are currently focused more on large enterprises. "Medium and small companies will be the first to demonstrate a deterioration in financial metrics, and they will be the first to be affected by credit quality issues," the National Credit Ratings Committee predicts.

What government support measures have been prepared for coal miners?

At the end of May this year, the government approved a list of support measures for the coal industry as part of its anti-crisis plan, which Deputy Prime Minister Alexander Novak instructed relevant agencies to formulate in December 2024. The authorities have adopted a "targeted approach" to providing assistance. The current list includes deferrals on taxes, insurance premiums, and fees until December 1, 2025, for all organizations. A special subcommittee chaired by Finance Minister Anton Siluanov will consider the possibility of an extension (for example, Mechel was approved for such assistance for a maximum period of three years); financial recovery programs with the assistance of direct beneficiaries, including restrictions on dividend payments and salary increases for top management, cost optimization, and debt restructuring for companies experiencing significant debt burdens. Siberian coal miners will receive a 12.8% discount on rail transport to ports in the South and Northwest, while others will have their long-distance logistics costs reimbursed from a subsidy .

As of early July, 73 companies had applied for assistance, 20 of which are under consideration, Deputy Energy Minister Dmitry Islamov said in a recent interview with TASS . Support has already been approved for three companies: Mechel-Mining, Vorkutaugol, and SUPK, while discussions regarding SDS-Ugl are ongoing.

In the spring of this year, the Ministry of Energy feared that without an anti-crisis program, the industry's consolidated losses would increase to 261 billion rubles.

RBC sent inquiries to the largest coal companies.

How will the consolidation take place?

Market consolidation is possible with "relatively inexpensive" loans needed to complete transactions, believes Ilya Zharsky, Managing Partner of the Veta Expert Group. "If monetary policy has been tight for a long time, then credit lines in the coal industry are likely exhausted, and new ones are too expensive," the expert reasons.

Ilya Makrov, DIRECTOR of ACRA's Corporate Ratings Group, concedes that this is less about large companies acquiring smaller players than about producers with more profitable assets improving their market share without additional acquisitions. Alexander Grigoriev, Deputy Director General of the Institute for Natural Monopolies, agrees that M&A deals on leveraged transactions in the coal market are "not expected" with the current key rate. Furthermore, the vast majority of companies have "extremely high" debt burdens ( coal producers' debt on loans and borrowings in 2024 amounted to 1.191 trillion rubles).

As a result, the industry will reduce coal production to a level sufficient to meet domestic demand and export profitability (by the end of this year, authorities expect to maintain production at the 2024 level of 443.5 million tons), according to Makarov. According to the National Coal Commission's forecasts, the main demand for solid fuel in the "coming years" will come from Southeast Asian countries, China , and India, due to the development of coal-fired generation in these countries, along with investment in renewable energy sources and the expansion of gas infrastructure. The latter are the primary alternatives to thermal coal in Asia, and therefore, demand and prices for it are more dependent on the situation in other energy markets and the political situation. In Russia, coal-fired generation accounts for approximately 15% of total electricity production, but domestic prices for solid fuel are approximately three times lower than export prices.

Speaking about potential consolidation, Zharsky suggests that Mechel, SUEK, and Kuzbassrazrezugol are among the contenders for the smaller assets. Elgaugol, which may have "free funds for acquisitions," could also be interested. "In 2022–2023, the company managed to attract financing through export contracts," the expert explains. An RBC source in the coal market lists the same companies, adding that they could acquire the smaller assets either for "peanuts" or with debt repayment terms. "There will simply be a market redistribution, consolidation, and possibly monopolization," the source says.

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