In Q1 2023, the armed conflict in Ukraine and the sanctions imposed on Russia continued to affect the macroeconomic situation in Europe and the world, in particular the energy and energy commodity markets.
The sanctions imposed on Russia as a result of its aggression against Ukraine have caused another 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 Q1 2023, the armed conflict in Ukraine and sanctions imposed on Russia had a limited impact on coking coal prices, the decisive factor in the price increase was the limited supply of overseas coals. In Q1 2023, the average TSI Premium HCC price amounted to 343.91 USD/t, up by 23.7% compared to Q4 2022 (278.13 USD/t). In March 2023, due to the expectation of improved supply from both Australian suppliers (official end of La Nina in Australia) and US suppliers, coupled with a slower-than-expected recovery in steel demand, coking coal prices trended downward. Q1 2023 saw TSI Premium HCC prices end at 301 USD/t, well below the quarterly average.
The sanctions imposed on Russia regarding the ban on the import of energy commodities, the restriction of the supply of steam coal, and gas and oil from Russia to the EU have led to the need to rapidly import steam coal from overseas markets contributing to an increase in the prices on world markets in 2022. A mild winter, high levels of coal inventories and gas storage, combined with lower-than-expected coal burning in Europe, resulted in a decline in steam coal prices at ARA ports in Q1 2023. The average price for steam coal at ARA ports in Q1 2023 was 147.42 USD/t, down 38.1% from Q4 2022 (238.16 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 700.22 PLN/t and increased by 28.7% compared to Q4 2022 (543.89 PLN/t).
The situation in the European energy market affected all energy-intensive industries, including the steel market. 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. Coke production at integrated coking plants has been curtailed to a lesser extent than would result from blast furnace shutdowns, because coke oven gas production has become a priority. This has led to a periodic oversupply of coke on the market and a drop in prices. In Q1 2023, in anticipation of an increase in demand for steel in the European market, some blast furnaces were brought back into operation. In Q1 2023 EU steel production rose steadily, but was 10.1% lower on a quarterly basis compared to Q1 2022. 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 Q1 2023, blast furnace coke (64/62 CSR) on a CFR year basis was priced at 443.3 USD/t in the European market, 8.1% higher than in Q4 2022.
The increase in imports of raw materials, mainly steam coal from overseas, has led to greater strain on domestic seaports and rail routes, making the logistics of delivery to customers more difficult.
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.
The development of the market situation is exposed to significant risk and it is difficult to estimate the long-term impact of the war in Ukraine on the 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 3 Months Ended 31 March 2023
- Impact on the Group activities I Q 2023 Format: pdf | 419 KB