Impact on the group's activities

THE IMPACT OF THE ARMED CONFLICT IN UKRAINE ON THE GROUP'S ACTIVITIES

In 2023, the armed conflict in Ukraine and the sanctions imposed on Russia continued to affect the macroeconomic situation in Europe and the world. The war in Ukraine and sanctions imposed on Russia have caused a reorganization of the global coking coal market. Before the war in Ukraine, Russia’s share of coking coal imports to the EU was: approx. 10% for coking coal and approx. 30% for PCI coal. After the introduction of the sanctions, Russian coal was diverted to the Asian market, mainly to India and China. The missing volumes in the European market were supplemented by supplies from Australia and the US. The sanctions imposed on Russia have not significantly reduced the supply of coking coal on global markets, but they have changed the direction of trade. At present, the share of imports of coking coal from Russia in the total Chinese imports increased from approx. 7% in 2016-2020 to approx. 28% in 2023. China lost the status of clearing market in maritime trade of coking coal in favor of India. In 2023, the armed conflict in Ukraine and sanctions imposed on Russia had a limited impact on coking coal prices and what had a greater impact on the price increase was disturbances in supply Australian and American mines, caused, among others, by weather conditions, geological conditions, accidents, logistical difficulties, strikes and the internal situation in China and the growing demand from India. It is difficult to estimate the long-term impact of the war in Ukraine on the European and global markets. Globally, the war in the territory of Ukraine has resulted in a less stable economic situation, higher inflation and rising interest rates. The Group monitors the economic situation on an ongoing basis to assess its potential negative impact on the Group and take measures to mitigate this impact.

In addition to threats, the war in Ukraine also creates market opportunities for the Group's operations. Ukraine will need a considerable amount of steel, among others, to rebuild housing and social infrastructure destroyed by the Russian invasion. The Group's market position as a local, stable and predictable supplier of raw materials to the steel industry is growing, as evidenced by the long-term contracts concluded with key customers over the past year. Some European steel companies are preparing for responding quickly to demand from the Ukrainian market, which is to grow with the end of the war, driven by numerous projects for rebuilding the country. Ukraine is struggling with a serious shortage of production capacities and its demand for steel, according to analysts, may increase four times. The Ukrainian government intends to begin quickly to repair railroads and railway lines destroyed as a result of war with Russia with the aid of subsidies from the International Bank for Reconstruction and Development. Possible disruptions to the Group's operations and investment activities if the conflict escalates:

▪ broken or disrupted supply chains,

▪ disruptions in production continuity or higher production costs,

▪ disruptions in electricity supply, deterioration of the country's energy security, and further increases
   in energy costs,

▪ increase in the prices of raw materials, as well as materials and services,

▪ disruptions to logistics in ports due to higher overseas imports of raw materials, among others, iron
  ore,

▪ impact on the supply of metallurgical goods on the European market,

▪ cyberattacks against IT resources leading to a data leak and disinformation,

▪ hazards arising from the availability of employees.

The Group analyzes on an ongoing basis the possible impact of the armed conflict in Ukraine on its current and future financial position, its operations and future financial results.

Source: Management Board Report on the Activity of Jastrzębska Spółka Węglowa S.A. and the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2023