Is the Collapse of Russias Coal Industry the Beginning of Economic Turmoil?

Declining global coal prices and international sanctions have brought Russia’s coal sector to a critical state, prompting government intervention in a bid to safeguard both a vital energy resource and a significant source of employment.

**Why is Russia’s coal industry facing turmoil?**

The prices for thermal coal, essential for electricity generation, and metallurgical coal, necessary for steel manufacturing, witnessed a remarkable increase from 2021 to 2023, driven by post-pandemic recovery and supply disruptions related to the conflict in Ukraine.

However, that boom has now fizzled out.

Global production has surged, particularly in China, India, and Indonesia, while demand has diminished. Growth in consumption dropped from 4.7% in 2022 to a mere 1% in 2024, resulting in a fall in prices from $400 per ton at the end of 2022 and the start of 2023 to approximately $100 per ton by May 2025.

In the meantime, Russian coal is being sold at substantial discounts.

In 2021, Russia exported about 22.6% of its coal to the EU, but a European embargo forced producers to shift their shipments to Asia, where buyers have taken advantage of the situation to negotiate lower prices.

As noted by the Vedomosti business daily, export prices for Russian coal dropped to $69 per ton FOB at Far Eastern ports in late June—the lowest level since 2020. Under FOB terms, the seller is responsible for delivery to the port but not for sea freight costs.

The estimated cost of producing and transporting a ton of thermal coal via the eastern route is between 6,000 and 6,500 rubles. Given the current strong ruble, a sale price of $70 per ton (approximately 5,500 rubles at the current exchange rate) fails to cover expenses for many companies situated far from the Far Eastern ports.

«At present price levels, combined with exchange rates, financing costs, and logistics for rail and sea transport, thermal coal production in Kuzbass is unviable for all involved,» stated Roman Golovin, strategy director at the Siberian Coal Energy Company (SUEK), the largest coal producer in Russia.

He noted that four out of SUEK’s 10 coal businesses have either reduced operations or are contemplating closures.

According to official statistics, the percentage of coal companies operating at a loss jumped from 31.5% in 2023 to 53.3% in 2024.

**What is the significance of the industry?**

Despite these challenges, the government is unlikely to allow the coal industry to collapse.

Approximately half of Russia’s annual coal production is used domestically. In 2023, coal accounted for 12-13% of electricity generation and plays a critical role in various regions, including the Far East and the Kemerovo (Kuzbass) region in western Siberia, sometimes providing 50% or more of the energy supply.

Yakov & Partners, a consultancy based in Moscow, forecasts that coal’s share in Russia’s primary energy mix will remain around 10% until 2050.

In terms of exports, the demand for Russian coal could potentially rise in the event of significant gas shortages amid ongoing geopolitical tensions. Additionally, increased production in countries such as Vietnam and India may lead to some upward pressure on coal prices.

The industry also holds considerable social significance. Approximately 146,500 individuals are employed within Russia’s coal sector, and around 30 towns—mainly in Kuzbass—are economically reliant on coal. A collapse of this industry would have devastating effects on these communities.

**What would be the government’s investment to save the coal industry?**

The Russian government is providing support for the coal industry through subsidies and tax incentives.

In May, President Vladimir Putin endorsed an Energy Ministry relief initiative aimed at stabilizing exports.

The ministry anticipates that the sector will require around 178 billion rubles ($2.2 billion, based on foreign exchange market data released by Reuters) in assistance this year, exceeding the 112 billion rubles ($1.4 billion) in losses forecast for 2024.

Projected losses for 2025 could reach between 300 and 500 billion rubles ($3.7 to $6.2 billion), with total sector debt expected to rise to 1.5 trillion rubles ($18.6 billion) by year’s end.

**What are the broader implications for the Russian economy?**

Analysts contend that while government support may keep the coal industry afloat, it does not resolve underlying challenges such as global market competition or the shift towards renewable energy. This suggests that state aid will need to be sustained or even increased for years to come.

This situation is unlikely to drastically disrupt the federal budget, especially since coal contributes a relatively small portion to state revenues, according to a former Russian official with expertise in market regulation who spoke to The Moscow Times on condition of anonymity.

However, it could undermine regional finances in Kuzbass and the Khakassia republic, where coal taxes constitute over a third of local revenue.

Economist Vladimir Inozemtsev expressed to The Moscow Times that the issue is more social than financial.

He posited that while the government might manage annual support costs of up to 300 billion rubles ($3.7 billion) without fiscal crisis, «the real challenge lies in quickly establishing a new economic identity for the Kemerovo region, which accounts for over 50% of Russia’s coal production.»

«Intensified discontent among specific professions or regions poses a greater threat to authorities than general dissatisfaction with declining living standards among the broader populace,» he added.

Nevertheless, the government’s coal conundrum surfaced at a politically challenging time, as public finances are already under pressure, as noted by economist Alexandra Prokopenko.

«Budget revenues are diminishing, financial reserves are dwindling, and the National Wealth Fund is being depleted over just three years. Politically, this results in the government propping up affluent owners of inefficient companies—businesses that fail to align with current demands,” Prokopenko stated.

Russia has recorded a historic midyear budget deficit of 3.7 trillion rubles ($45.8 billion) following a 20% increase in expenditure during the first half of 2025. Analysts surveyed by the Central Bank project that the total deficit for the year could reach 4.4 trillion rubles ($55 billion), equating to 2% of GDP.

Both Federation Council Speaker Valentina Matviyenko and Duma Budget Committee Chair Anatoly Artamonov have called for reduced spending and enhanced fiscal discipline to prevent the deficit from widening further.