Russia's economy on the brink: mass bankruptcies are looming!

Russia's economy faces an impending massive increase in corporate bankruptcies. A central factor is Vladimir Putin's switch to a war economy, which has further exacerbated existing problems. High inflation is forcing the Russian central bank to raise the key interest rate to 21 percent, while forecasts suggest that it could be raised to 25 to 30 percent in the future.

At the end of 2024, over 20 percent of manufacturing companies paid interest, which accounted for more than two thirds of their pre-tax profit (EBIT). Additionally, lending to key industries plunged by 30 to 50 percent in November and December 2024, while borrowing in the debt market is becoming increasingly difficult. Experts warn of a wave of defaults and mutual defaults.

Warnings of bankruptcies in the coal industry

In the period between July and September 2024, large and medium-sized companies experienced a late payment rate of 19 percent, and for small companies the rate was as high as 25 percent. Igor Sechin, the head of Rosneft, criticized the central bank's financial policy for its negative impact on financing costs. Shopping centers, the defense sector and the coal industry are particularly at risk.

The defense industry is suffering from Western sanctions that limit access to important components, while a shortage of skilled workers is putting additional strain on the industry. Sergei Chemezov warned that many companies could go bankrupt if prices remained at current levels. The coal industry is also facing major blows due to falling demand, particularly from China.

According to reports, Russian coal imports fell by seven percent to 95.1 million tons in 2024. In this context, the Russian government is considering measures to support a possible mass bankruptcy in the coal industry. In addition to these economic challenges, sanctions against the Russian economy have been found to have an increasingly negative impact on coal production.

Before the Ukraine conflict, the Russian economy was one of the three largest coal exporters in the world. In 2021, the market share of Russian hard coal in EU imports was 46.7 percent, but since 2022 there has been an EZ coal embargo against Russia, which prohibits EU states from importing coal from Russia. Russia has tried to redirect its coal exports to Asia, with China emerging as the main buyer.

However, with China importing a record 543 million tonnes of coal in 2024, Russian coal imports also fell and had to provide discounts for buyers to remain competitive. The industry recorded a total loss of 91 billion rubles from January to September 2024, the highest of all sectors. Analysts estimate that problems in the coal industry will continue for at least two years, while trade in LNG and oil is also struggling due to Western sanctions.

For the coal industry, this means that some mining companies have already had to close due to a lack of sales. The Ministry of Economic Development and the Federal Tax Service have been asked to support struggling mining operations, and Vneshekonombank could take control of distressed assets.