Russia may demand its coking coal companies supply a large part of their output to the domestic market in a move that could limit exports of the steelmaking raw material, Russian newspaper Vedomosti reported on Wednesday.
Under the plan, Russian miners would be required between them to supply a minimum 50 million tonnes of coking coal concentrate a year to the domestic market, Vedomosti reported. This is equivalent to 93 percent of its production last year.
Vedomosti cited a source within a coal company who had attended a recent panel discussion with Russia's influential Deputy Prime Minister Igor Sechin, whose brief in the government includes overseeing the energy and industrial sectors.
Analysts, however, said such a plan would be difficult to enforce and that Russian steel makers who use the coal were already protected by a booming domestic steel market and a high degree of vertical integration.
"Restrictions in coal and the broader steel-related commodity segment will be hard to implement," Deutsche Bank analysts Mikhail Seleznyov and Olga Okuneva said in a note.
"The steel sector is almost entirely privately held and generally well-managed. The government would have to abandon market mechanisms to even partially succeed, and we believe this is not on the government's agenda," they said.
Russia is the world's third-largest coal exporter behind Australia and Indonesia and ranks fifth in terms of production.
It produced 74.9 million tonnes of coking coal in 2007, said Anatoly Skryl, general director of independent coal information agency Rosinformugol.
From this, Russia produced 54 million tonnes of coking coal concentrate and consumed 42.4 million tonnes domestically. Approximately 10 million tonnes was exported, said Skryl.
Analysts said coking coal export quotas would be vulnerable to corruption as officials would have to distinguish between coking coal and steam coal, which would not be subject to restrictions.
"The government would find itself moving backward many years to the times of the central planning system, trying to somehow predict and coordinate production and supply," Troika Dialog mining analysts said in a note.
"Should it fail to perform this task efficiently, which it most surely would, the ultimate outcome of the new system would discourage investment in capacity expansion," they said.
Russia's largest coking coal miners are Mechel which is listed in New York, and Raspadskaya, which is part-owned by steel maker Evraz Group.
Mechel last year acquired the rights to develop the Elga field, Russia's largest untapped coal deposit, and plans to spend $3 billion bringing it into production.
Source: Reuters
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