Excess supply of coal and coke on the European Union market

In the last decade, the growing global coal market and the increasing demand for coal throughout the work drew new investors to the coal industry. Many new mines were created and the existing ones were expanded, thus increasing the global production capacity. The global production of coal grew very dynamically, from 4.6 billion tons in 2000 to 7.8 billion tons in 2011. Moreover, the coal price growth which has taken place from the outset of 2003 has enticed new and existing international coal producers to expand their production capacities.
The excess coal and coke supply on global markets and the domestic market may lead to a considerable decline in coal and coke prices and may exert a material and adverse impact on the Group’s operations, performance and financial position.

During the current economic slowdown, where new selling markets are sought, product prices reduced or coal or coke inventories placed in storage sites, the Group was quite significantly affected by this risk in 2012. In 2012, coal inventories rose by 684.0 thousand tons compared to the previous year.

Also, coke sales were affected by the declining steel production in European Union states. The declining demand for coke on the European market was noticeable especially in Q4 2012, where steel production was lower and steel manufacturers suspended their orders, waiting for the market to react to China's expected alignment with World Trade Organization's recommendations on abolishing restrictions in raw materials trading. As a result of this situation, the utilization of production capacity of coking plants dropped and coke inventories increased.