In the six months ended 30 June 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 H1 2023, the armed conflict in Ukraine and sanctions imposed on Russia had a limited impact on coking coal prices. Amid weak global demand in the steel sector, fluctuations in the supply of coking coal from its largest exporters, Australia, the US and Canada, have been a decisive factor in the coking coal price level. 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 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. 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 Q1 2023, the average price was 147.42 USD/t, and in Q2 2023 it fell 13.8% to 127.13 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, in April they were 705.49 PLN/t, and in May 716.43 PLN/t (according to available IDA data for Q2 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 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 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, down by 3%, in Q2 2023.The average price in H1 2023 was 436.67 USD/t, 32.8% lower than in H1 2022 (650.00 USD/t).
In addition to threats, the war in Ukraine also creates market opportunities for the Group's operations. 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: Management Board Report On The Activity Of The Jastrzębska Spółka Węglowa S.A. Group
for the period of 6 months ended 30 June 2023
- Impact on the Group activities I H 2023 Format: pdf | 420 KB