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In the meantime:
Russian Mining Industry Falling Into Despair.
May 2022 | Features
Russian coal mines keep running largely on Western equipment.
How long can Russian mining operations continue without imported spare parts?
By Vladislav Vorotnikov
Facing ostracism on the global market, Russia risks ending up without Western mining equipment and losing a decent share of overseas markets. Coupled with a profound anticipated economic depression and logistics problems, these factors promise to drive the mining sector into long-term despair.
A mass exodus of Western businesses is one of the main consequences of the Russian invasion of Ukraine. At press time, nearly 500 companies had announced their withdrawal from Russia, isolation only strengthens.”
“If it goes like this, the Russian mining industry would change drastically in the next six to 12 months, as being stripped of foreign technology, it would inevitably become less effective, efficient, and on top of that, operations are inevitably becoming more dangerous,” the source said.
There are some signs that Russian mining companies are braced for equipment shortage. Since the beginning of the invasion, Russian recruiting agencies have recorded an explosive growth in demand for blue-collar workers, in particular, repairmen in the Russian mining industry. The trend is believed to be related to the suspension of foreign equipment imports and the withdrawal of foreign companies from the Russian market.
Since February, the demand for equipment repair specialists in Russia increased sharply, Vladislav Bykhanov, a partner at the recruiting company Cornerstone, claimed.
On March 5, in particular, Cornerstone received a request from Phosagro, a major producer of high-grade phosphate raw materials and phosphorus-containing fertilizers to hire 60 repairmen, said Bykhanov.
“Sixty repairmen is a lot, even for Phosagro,” Bykhanov said, explaining that he associated this with the fact that many Western companies, such as General Electric, Hitachi, Caterpillar and MAN, stopped supplying production equipment and parts to the Russian market. In this background, Russian companies realized that they would not be able to source new equipment and began to stock up with employees who could repair old machines, he added.
Norilsk Nickel is another company that has recently started recruiting an unprecedented number of repairmen.
Daria Kryachkova, director of personnel policy at Norilsk Nickel, told Forbes: “In the context of limited supplies of spare parts or replacement of equipment with domestic counterparts [against the backdrop of sanctions], we will need workers with higher qualifications.”
Bykhanov said the number of repairmen in Russia is set to grow exponentially, so at some point, workers at the Russian mines would be forced to become “Kulibins” — a Russian term used to describe mechanics founding extraordinary solutions to technical problems. He added that, among other things, Russian mechanics would need to figure out how to use Russian spare parts on Western equipment.
Export is Under Question
Western sanctions and mounting international isolation also promise to hinder the Russian mining industry’s export prospects.
Before the war, Russia hoped to ramp up coal production up to 668 million metric tons (mt) by 2035, compared to 440 million mt in 2021 under an optimistic government scenario. Export was expected to double, reaching 390 million mt on the back of strong demand both in European and Asian directions. However, those plans have been voiced before the war, and no longer seem realistic.
On April 8, the European Commission passed the fifth package of sanctions against Russia, which included an import ban on all forms of Russian coal. This affects one-fourth of all Russian coal exports, amounting for around €8 billion ($8.5 billion) loss of revenue per year for Russia.
Russia will be able to redirect coal exports from the EU to countries in the Asia-Pacific region through the seaports of the European part of the country, Alexander Novak said, speaking during a press conference shortly after the decision was made public. He explained that Russian companies have the opportunity to export coal to the Asia-Pacific market through underloaded ports — for example, Taman and free capacities in the Baltic Sea.
However, Asian customers also started abandoning Russian coal. Kyushu Electric Power, based in Japan, said it would suspend all imports of Russian coal in 2022, and that the company had already found alternative sources.
The Russian newspaper Kommersant, citing sources in the Russian coal industry, reported that India looked like the only market where export growth was possible. Still, India has a moderate demand for coal. In 2021, Russian coal exports to India stood at only 5 million mt. The countries labeled as unfriendly jointly accounted for 40% of Russian coal imports, in 2021. In Europe, Russian coal is likely to be replaced by that from Australia, U.S. and Colombia.
Most Russian coal companies declined to speak publicly about the aftermath of Western sanctions. Russia’s largest coal company, the Siberian Coal & Energy Co. (SUEK), did not provide any comments by press time. A source in a Russian coal company commented that the ban on coal exports to Europe would become a shock for the Kuzbass.
“What we are witnessing now is likely to be the end of the Kuzbass,” the source said, explaining that there is no way to drastically boost the demand on the domestic market and find alternative overseas sales markets. “I think in a couple of coming years, we will be seeing smiles on the faces of Western coal miners, as they would be glad to replace us and make deliveries at relatively high prices.”
However, things are looking relatively positive for the Russian metal and fertilizer producers.
The West will not survive without Russian metals and fertilizers, said Maria Maksakova, acting head of the Department of International Economic Relations at Moscow-based MGIMO University. Any possible restrictions on the Russian fertilizers export could trigger a world food crisis, especially since the situation on the global grain market already seems harsh, she added.
This means that Phosagro and Eurochem are in rather safe territory.
In addition, Maksakova said Russia accounts for about 10%-12% of world nickel exports, 13% of titanium, and 40% of palladium.
Russian mining companies will have to cope with logistics and financial issues. Rusal reported it was also facing a shortage in supplies of alumina after Australia banned exports to Russia and Mykolaiv Alumina Refinery in Ukraine halted production.
“These measures and the events may influence the availability of alumina and bauxite or increase the purchase prices for group. Major international shippers have suspended bookings to and from Russia, which will cause the group to rebuild the supply and sales chains and may lead to additional logistics costs,” Rusal said.
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