In 2022, the armed conflict in Ukraine and the sanctions imposed on Russia strongly affected the macroeconomic situation in Europe and the world, in particular the energy and energy commodity markets.
The outbreak of the war in Ukraine has caused great uncertainty for steelmakers regarding security of supply of raw materials, providing the impetus for a record increase in coking coal prices, exceeding historical highs by 200 USD/t. The prices of hard coals exceeded 670 USD/t in the peak period (as of 14 March 2022). In the following months, the prices steadily declined, reaching pre-war levels in June 2022. The average TSI Premium HCC index in Q1 2022 was 487.80 USD/t and fell 8.7% down to 445.52 USD/t in Q2 2022. In Q3 2022, it went further down by 43.9% vs. Q2 2022 down to 249.75 USD/t. In Q4 2022, the average TSI Premium HCC price increased by 11.4% to 278.13 USD/t compared to Q3 2022.
Prices of blast furnace coke increased following the outbreak of war in Ukraine, but the appreciation was less pronounced than for Australian coking coal. The prices of Chinese CSR 64/62 coke increased from below 500 USD/t in February 2022 to 680 USD/t in the second half of March 2022. On the European market, in March 2022, CSR 64/62 blast furnace coke prices increased by nearly 100 USD/t (compared to February 2022) to 700 USD/t. As in the case of coal, there was a decline in coke prices in individual months.
The average price of Chinese coke (64/62 CSR) FOB China in Q1 2022 was 563.8 USD/t, in Q2 it increased by 5.2% to 593.2 USD/t, in Q3 2022 there was a decrease in the prices by 28.5% to 424.0 USD/t compared to Q2 2022, and Q4 saw a further decrease compared to Q3 2022 by 6.0% to 398.4 USD/t.
In the European market, blast furnace coke (64/62 CSR) CFR was priced at 636.7 USD/t in Q1 2022, with a 4.2% price increase to 663.3 USD/t in Q2 2022. In Q3 2022, the average coke price on the European market was 460.0 USD/t, down 30.7% from Q2 2022, and in Q4 2022 it fell 10.9% to 410.0 USD/t compared to Q3 2022.
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.
The average price for steam coal at ARA ports in Q1 2022 was 229.6 USD/t, with a 47.8% increase in Q2 to 339.2 USD/t, in Q3 2022 prices were 364.2 USD/t up 7.4% from Q2 2022, and in Q4 2022 there was a 34.6% decrease in the prices from Q3 2022 to 238.2 USD/t.
The change in the market situation has also affected domestic steam coal prices. The Polish Steam Coal Market Index prices in sales to commercial and industrial energy sector (PSCMI 1) in Q1 2022 stood at PLN 291.59 per ton and increased by 11.7% to PLN 325.58 per ton in Q2 2022.In Q3, domestic mining companies undertook renegotiations with customers, as a result of which PSCMI1 prices increased by 64.8% to PLN 536.42 per ton compared to the previous quarter. In Q4 2022, the prices stood at PLN 543.89 per ton, up 1.4% compared to Q3 2022.
The consequence of Europe's deep energy commodity deficit, following the introduction of sanctions on Russia, has been an unprecedented increase in electricity and gas prices and concerns about their availability during the winter. This has affected the steel market in the European Union. Faced with the threat of an energy crisis, rising costs, and uncertainty in demand for steel products, 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. Coke gas production has become a priority. This has led to a periodic oversupply of coke on the market and a drop in prices.
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.
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. Globally, the war in the territory of Ukraine has resulted in a less stable economic situation, higher inflation and rising interest rates.
The war in Ukraine may continue to affect markets important to the Group, including:
- steel market- the combined output of Russia and Ukraine in 2021 accounted for 5% of global steel production (97 million tons). Russia was the second largest steel exporter in the world, the main export markets being the EU (22%) and Asia (23%). Approx. 28% of the EU's and 35% of the U.S.' imported pig iron in 2021 came from Russia. Ukraine was also a major supplier of iron ore to the Central European market. By 2022, Ukrainian iron ore mining companies were operating at an average of 20% of capacity, while steel producers were operating at about 15%. The largest loss of steel assets occurred in May 2022, when two of Ukraine's largest steel plants in Mariupol - Azovstal and Illich Steel - were destroyed. In 2022, Ukraine produced 6.3 million tons of steel (down 71% from 2021), 6.4 million tons of pig iron (down 70% from 2021) and approx. 5.4 million tons of rolled steel (down 72% from 2021). Russia's 2022 steel production is down 7.2% to 71.5 million tons from the previous year. Once the war is over, Ukraine's steel exports will not resume, as the country will need huge amounts of steel for reconstruction. After the war, Ukraine's estimated steel demand will increase to 15-20 million tons per annum, up from 2 million tons in 2022 and 5 million tons in 2021;
- coking coal market-the sanctions imposed on Russia as a result of its aggression on Ukraine cause another reorganization of the global 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. In EU countries the demand for overseas imports has increased. The coking coal market is affected by the situation in the steam coal market. At the peak of the steam coal buying rush, its prices exceeded coking coal prices, causing the diversion of lower-quality semi-soft and PCI coal to the energy market. Some mining companies with coking and steam coal mines in their assets increased steam coal mining at the expense of coking coal, which affected the supply of coking coal and its price;
- coke market– high energy and gas costs in the EU may lead to restrictions on steel production and a decline in demand for coke. Factors related to the lower supply of certain types of coal may be at play when steel production increases. Lack of availability of PCI coal, of which Russia is one of the major exporters, may lead to increased coke consumption in the blast furnace process;
- energy market – record increased in energy prices, fears for its availability affect decisions of steel concerns regarding periodic restriction of steel production, which may translate into lower demand for coke and coking coal;
- freight forwarding market– increased imports of offshore steam coal, increased strain on sea ports and rail routes may hinder coal and coke supplies to business partners.
The armed conflict in Ukraine has pushed up commodity prices in the market. This situation resulted in requests from some material suppliers (mainly steel-based) to renegotiate their contracts.
In justified cases, the Group signed annexes to the contracts with suppliers. There has also been an increase in the prices offered by business partners for materials in ongoing tenders.
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.
Possible disruptions to the Group's operations and investment activities if the conflict escalates include:
- severed or disrupted supply chains that may lead to limitations in the availability of raw materials from Ukraine and Russia that steel companies and coke plants need,
- 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, i.a. 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.
As at the date of this report, due to the dynamic situation, it is difficult to predict the long-term economic effects of the war in Ukraine and its effect on the overall macroeconomic situation, which may indirectly affect the Group’s financial performance. 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 2022
- Impact on the Group activities Y 2022 Format: pdf | 507 KB