Management Board Report on the activity of the JSW S.A. for 2012
2.1. Description of the industry and competition
JSW S.A.’s core line of business comprises:
production and sale of coking coal (hard and semi-soft) and steam coal,
sale of coke and coal derivatives produced by the Capital Group’s coking plants.
In 2012, the Company was the only domestic producer of type 35 (hard) coking coal and a major producer of type 34 (semi-soft) coal. In Poland, type 34 coking coal is also produced by Kompania Węglowa S.A. The share of JSW S.A. in the domestic production of type 35 coking coal and type 34 coal is 66% and 14%, respectively1. The Company’s share in the domestic production of steam coal is approximately 6%1. For many years, the largest producer and consumer of coal has been China (more than 3.5 billion tons). The world’s largest coal producers ranked below China are the United States, India, Australia, Indonesia, Russia and South Africa. In Europe, major producers of coal other than Poland are the Czech Republic, Germany, Ukraine and Russia. The total production of coal does not cover the demand of European customers, hence the need, especially in Western countries, to import the required coal. The deficit of coal in the European Union in 2011 was approximately 180 million tons2, including approximately 40 million tons of coking coal. This creates an opportunity for JSW S.A. to place its coal within a profitable geographic rent area.
In the area of production of hard coking coal, thanks to its balance sheet and operating resources and significant capital expenditure commitment, the Company has a strong foundation to maintain its leading position in the European coking coal market. The Company has approximately 0.5 billion tons of operable coal resources, including significant quantities of high-quality coking coal with a low ash and sulfur content and very good coking parameters, enabling the Company to direct its offer to the coking and power industries both at home and abroad.
Another major product of JSW S.A., after hard coking coal, is coke produced by the Group’s coking plants from an appropriately composed mix of coking coals. The Group’s share in the domestic production of coke is approximately 45%, which puts it in second place in the Polish coke market after ArcelorMittal Poland. The main market for the sale of coke produced by the Group is the European market. However, in light of the recent market conditions (the economic slowdown, a low rate of growth of steel production in Europe, high inventories of coke and a reduced coke production capacity utilization rate), the Company’s customer base was expanded to include overseas customers. Accordingly, part of the coke produced in the Group’s coking plants has been exported to India and Brazil.
The diversity of coal and coking products offered by JSW S.A. enables the Company to sell its merchandise to a number of industries (coke production, metallurgy, electricity and heat production, insulation materials, etc.). This allows the Company to operate at many levels and flexibly manage its trading policy, adjusting it to the current market conditions.
