Russian Coal Industry Faces Crisis: Government Extends Lifeline to Major Producer Amid Ongoing Challenges

One of the prominent mining firms in Russia has become the inaugural coal producer to receive government assistance amid an escalating crisis in the coal sector, as reported by the company’s deputy finance director on Monday.

Mechel has been awarded a three-year postponement on tax and social security contributions amounting to over 13 billion rubles (approximately $166 million), according to deputy finance director Nelli Galeeva.

The company anticipates an additional savings of 500 million rubles (around $6 million) monthly once comprehensive industry support measures, such as deferred mineral extraction taxes and social insurance contributions, take effect.

“We were among the first to reach out to the government for assistance and were the initial recipients of funds from the commission led by Finance Minister Anton Germanovich Siluanov,” Galeeva stated.

Despite this support, the future for coal producers appears bleak.

Mechel’s CEO, Oleg Korzhov, remarked that the industry is encountering “serious challenges,” and coal producers are preparing for a decline in sales.

“Mechel intends to scale back coal shipments by approximately 25% compared to last year,” Korzhov added.

He described this as a “pessimistic” forecast, acknowledging that “changes in either domestic or international factors could influence the result.”

Nevertheless, he recognized that the current climate for the coal industry remains unfavorable, with prices at their lowest in several years, a robust ruble hindering exports, and increasing corporate losses.

Vladimir Korotin, the leader of Russian Coal, one of the country’s largest coal producers, referred to the crisis as “the worst since the 1990s.”

In 2024 and the early part of 2025, coal emerged as the sole major industry in Russia where the percentage of companies operating at a loss, 61.8%, exceeded those making a profit.

Although production has increased by 1.4% in the initial five months of this year, a rising portion of this coal is accumulating in storage rather than being sold.

Production is already declining in the Kemerovo region, Russia’s coal-mining center.

The Kremlin-aligned Center for Macroeconomic Analysis and Short-Term Forecasting revealed that coal companies are experiencing stress across almost all key financial health indicators, except for bankruptcy, which many firms are managing to avoid thanks to government aid.

Industry insiders believe that conditions may stabilize and express hope for an improvement in the latter half of the year.

“Practically all coal producers are contending with extremely challenging conditions, resulting in reductions in both production and investment plans. At the current exchange rate, coal sales are not profitable,” Korzhov said.

However, he added that “prices are unlikely to decrease further, as around 20% of global coal companies are already operating at a loss. Reduced production will push prices higher, a possible decrease in the key interest rate could enhance the dollar exchange rate, and debt burdens may ease for businesses.”

These factors could lead to a recovery in the third and fourth quarters of 2025, he noted.

In 2023, Mechel’s EBITDA (earnings before interest, taxes, depreciation, and amortization) plummeted by 35% to 56 billion rubles, while its debt level escalated, with net debt reaching 4.6 times EBITDA.

To alleviate its debt load, Mechel plans to divest a portion of its assets, primarily in the energy sector.

Despite the proposed divestiture and governmental support, analysts at BCS World of Investments, a Russian financial services firm, maintain a negative outlook for Mechel’s shares.

Government backing for the coal industry has included deferrals on mineral extraction taxes and social security payments until December, with the potential for extensions.

Additional initiatives encompass partial reimbursement for export shipping costs to northwestern and southern regions, along with targeted subsidies to cover certain logistics expenses for exports to the west and south.

Companies with significant debt burdens are eligible for debt restructuring, and some will receive other customized forms of support.