Impact on the group's activities

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In the 9 months ended 30 September 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.

In the 9-month period ended 30 September 2023, the armed conflict in Ukraine and sanctions imposed on Russia had a limited impact on coking coal prices. Coking coal prices rose dynamically in early 2023 as a result of unforeseen supply constraints (e.g. by weather, geological conditions, accidents, logistical difficulties, strikes), reaching a maximum of 390 USD/t in February 2023. In Q2 2023, coking coal prices successively declined amid weak global demand resulting from lower steel production and the absence of the previously expected recovery in steel demand, while the supply of coking coal improved. The prices stabilized in May and June 2023, oscillating around the 230 USD/t level. In Q3 2023 prices rose as a result of the market's high sensitivity to supply shocks, including supply disruptions from Australia, Canada, the US and Russia and production in China, as well as high domestic prices in China. The main driver of growth on the demand side was the demand for coking coal from India, which has been rebuilding inventories after the monsoon period on the back of strong growth in steel production (10.5% y/y growth in steel output for the first 8 months of 2023). Australian Premium Low Vol ("PLV") coking coal prices ended Q3 2023 at 333 USD/t FOB Australia. The average price of Australian PLV coal for Q3 2023 was 263.59 USD/t, up 8.6% compared to Q2 2023 and 5.5% higher compared to Q3 2022. Despite the increase in quarterly prices, the average price of Australian PLV coal for the 9 months ended 30 September 2023 was 283.53 USD/t FOB Australia, 27.8% lower than the average for the corresponding period in 2022 of 392.54 USD/t FOB Australia.

In H1 2023, steam coal prices declined as a result of weaker demand (the decline in European seaborne coal imports in Q2 2023 compared to Q2 2022 was 40%), impacted by lower coal-fired electricity generation amid a mild winter and high stocks remaining after heavy imports in 2022 following the outbreak of war in Ukraine and the imposition of sanctions on Russia. Steam coal prices were also pressured by lower gas prices and greater gas availability and a high level of filling of gas storage facilities. The average price of steam coal at ARA ports in H1 2023 was 137.28 USD/t, down 51.7% from H1 2022 (284.40 USD/t). In Q3 2023, the average price was 117.81 USD/t, down 7.3% from Q2 2023, and 67.7% compared to Q3 2022. Despite the quarterly decline, monthly prices increased during Q3 2023 (110.44 USD/t in July, 119.79 USD/t in August and 123.19 USD/t in September 2023), supported by high natural gas prices. In the 9-month period ended 30 September 2023, the average price was 130.79 USD/t, 57.9% lower than in the corresponding period of 2022 (311.01 USD/t). The domestic steam coal market reacts to changes in prices at ARA ports with some delay, prices for the main domestic consumer of steam coal - commercial power plants - are mostly set for annual periods. The Polish Steam Coal Market Index prices in sales to commercial and industrial energy sector (PSCMI 1) in Q1 2023 stood at PLN 700.22 per ton, and in Q2 2023 they increased by 2.5% from the previous quarter and amounted to 718.04 PLN/t. In July, the PSCMI 1 Index was 726.66 PLN/t, and in August it was 703.15 PLN/t (according to available Industrial Development Agency data for Q3 2023). Faced with the threat of an energy crisis, rising costs, and uncertainty in demand for steel products, by the end of 2022 many steel companies have introduced production restrictions and temporary shutdowns of blast furnaces. Most of the shutdown blast furnaces returned to operation in H1 2023, with the exception of those scheduled for planned overhauls and maintenance. In Q3 2023, the weakening steel market in Europe was the reason for shutting down blast furnaces again, in addition to previously scheduled repairs and maintenance typical of the summer season. In Q1 2023, in anticipation of an increase in demand for steel in the European market and as a result of the return of blast furnaces to operation, EU steel production rose steadily. This resulted in an increase in the prices of blast-furnace coke on the European market, but the increase was much lower than that of coking coal. In Q2 and Q3 2023, market sentiment deteriorated, and a decline in steel production, a surplus of coke and strong price competition from China caused coke price prices in the European market to also decline. Blast-furnace coke (64/62 CSR) in the European market on a CFR year basis was priced at 443.33 USD/t in Q1 2023, and at 430.00 USD/t in Q2 2023. In Q3 2023, the average price was 370.00 USD/t, down 14.0% from Q2 2023, and 19.6% compared to Q3 2022. The average price in the 9-month period ended 30 September 2023 was 414.44 USD/t, 29.4% lower than in the corresponding period of 2022 (586.67 USD/t). In addition to threats, the war in Ukraine also creates market opportunities for the Group's operations. Ukraine will need about 3.5 million tons of steel just 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. The Group is a strategic partner for many European steel mills supplying most of the coking coal or coke they consume. Market developments are subject to significant risk, and it is difficult to estimate the long-term impact of the war in Ukraine on European and global markets and, consequently, on the Group’s future financial position and operations. 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.

Source: Additional information to the consolidated quarterly report of the Jastrzębska Spółka Węglowa S.A. group for the period of 9 months ended 30 September 2023