Despite the fact that the total volume of coal supplies to China has declined, the country has been buying significantly more Russian coal since May, according to S&P Global Market Intelligence. This is due to the fact that Russia offers very large discounts compared to prevailing international coal prices, CNBC wrote.

Currently, the main coal exporters to China are Indonesia, Russia and Mongolia.

Russian coal shipments to China by sea rose 55% to 6.2 million tonnes in the first 28 days of June compared to the same period last year. In May, Russian sea shipments to China also rose 20% year-on-year to 5.5 million tonnes.

But China itself is also ramping up domestic coal production. The latest data from China’s National Bureau of Statistics showed that between January and May, coal production rose 10.4% year-on-year to 1.81 billion tonnes, while imports fell to around 96 million tonnes, down 13.6% year-on-year.

Despite lower demand and increased domestic coal production, China has been buying significantly more Russian coal since May 2022.

This is due to huge discounts for China on Russian coal imports.

Russia is a major global coal producer and exporter. But since the start of the special operation in Ukraine, Russia has had to sell coal to China at a discount after countries such as Japan refused to import the raw material from the country.

That said, total coal imports in mainland China were much lower in early spring due to sluggish demand as factory activity fell to zero amid the quarantine imposed. In addition, record high global coal prices as well as increased coal production in China were also to blame.

Accordingly, S&P data showed that Russian seaborne coal shipments to China fell 40 per cent year-on-year in March as the country experienced omicron outbreaks, before rising again in April when Russia began offering coal discounts.

In April, G7 countries vowed to cut Russian energy exports as they tightened sanctions against Russia.

Along with Japan, the European Union also announced a ban on Russian coal in its fifth package of sanctions in April, but the ban was postponed until August.

During last week’s summit, the G7 countries reiterated their commitment to impose new sanctions, including a proposal to cap the price of Russian oil as the latter has become very expensive as a consequence of the conflict in Ukraine and reduced global supplies.

Overall, S&P Global Market Intelligence expects global coal shipments from Russia to increase in the second quarter, along with shipments from Indonesia, another major coal exporter.

All eyes will now turn to China: whether it will increase coal imports as I plants reopen and travel restrictions due to COVID-19 ease.

Increased demand for coal from China could lead to higher coal prices, exacerbating already rising global inflation.

Chinese customs data shows that Indonesia, Russia and Mongolia are currently the largest coal exporters to China, while Australia has ceded its lead after China imposed restrictions on Australian coal in 2020.