Management Board Report on the activity of the JSW S.A. for 2012

2.2. Key products, goods and services

JSW S.A.’s coal mining activity is performed by five coal mines. The Borynia-Zofiówka3 and Pniówek mines produce good quality coking coal mainly for the production of blast furnace coke. The Jas-Mos1 mine produces coking coal with very low phosphorus content and low volatile matter content, used successfully in the production of foundry coke. The Budryk and Krupiński Mines currently produce primarily steam coal used by power plants to generate electricity. However, it should be emphasized that the production structure of the commercial coal in the mines, both with regard to hard and semi-soft coking coals and steam coal, is adapted flexibly to the dynamically changing market needs and in consideration of the supply and demand in the local and foreign markets.

In order to enable comprehensive management of the distribution of coke and coal derivatives produced by the Group’s coking plants (Koksownia Przyjaźń, KK Zabrze and WZK Victoria), in 2012 the sale of these products was commenced by Polski Koks S.A. (a subsidiary of the Group) acting for and on behalf of JSW S.A. The product structure of Koksownia Przyjaźń and KK Zabrze is dominated by blast furnace coke and WZK Victoria specializes in the production of foundry coke. The takeover by JSW S.A. of the coke and coal derivatives sales process allows the Company to organize its product sales and enables it to conduct an optimal policy of pricing its coal and coking products.

Coal

In 2012, the quality parameters of individual shipments of commercial coal, in particular type 35 (hard) coal from the Borynia-Zofiówka, Pniówek mines and the Jas-Mos mine (with low volatile matter coal – LVM) and type 34 (semi-soft) from the Budryk and Krupiński mines and steam coal produced in the Borynia-Zofiówka, Budryk and Krupiński mines fitted within the limits set forth in the commercial agreements.

The table below presents the main characteristics of the coal produced by JSW S.A.’s mines in 2012.

	Coking coal			Steam coal
	type 35 (hard)	type 35 (LVM) (hard)	type 34 (semi-soft)
Mine	Borynia-Zofiówka Pniówek	Jas-Mos	Budryk Krupiński	Borynia-Zofiówka Budryk Krupiński
Purpose	coke production	coke production	coke production	electricity and heat production
Ash content Ad / Ar (%)	6.6 – 7.2	5.9 – 6.7	5.4 – 7.8	17.8 – 27.8
Humidity Wtr (%)	8.3 – 9.8	8.6 – 8.9	5.7 – 7.5	8.2 – 14.6
Sulfur content S<td / Str (%)	0.45 – 0.68	0.39 – 0.48	0.63 – 0.84	0.43 – 0.98
Volatile matter content Vdaf (%)	22.2 – 26.9	19.7 – 20.5	33.0 – 38.5	–
Calorific value Qir (MJ/kg)	29.1 – 29.7	29.9 – 30.2	28.7 – 30.5	19.9 – 23.3
Coke strength after reaction CSR (%)	51.2 – 68.8	29.6 – 48.3	21.6 – 39.4	–
CO2 coke reactivity index CRI (%)	21.2 – 38.7	45.3 – 54.9	40.3 – 55.8	–

download table

The coal production volume in 2012 was at the level of 13.5 million tons, i.e. 0.9 million tons more than in 2011 and 0.2 million tons more than planned for 2012. The total sales of coal produced by JSW S.A., comprising intra-group and external deliveries, were realized at 12.7 million tons, i.e. 0.3 million tons more than in 2011.

In 2012, compared to the same period of the previous year, sales of coking coal increased by 0.5 million tons. However, supplies of steam coal in 2012 decreased by 0.2 million tons compared to 2011. It is noteworthy that the share of sales of the best quality type 35 (hard) coal that attracts the highest prices in the Company's total deliveries keeps increasing (2010: 55.9%, 2011: 57.8%, 2012: 60.4%). In the sales of coking coal, type 35 coal accounted for 83.6% (2011: 83.2%). The remaining 16.4% of the sales was type 34 (semi-soft) coal.

The following table presents the actual coal production and sales figures, including intra-group sales.

	2012	2011	Growth rate
Production (in millions of tons)	13.5	12.6	107.1%
- Coking coal (in millions of tons)(1)	9.5	8.8	108.0%
- Steam coal (in millions of tons)	4	3.8	105.3%
Total volume of JSW S.A.’s sales (in millions of tons)(2)	12.7	12.4	102.4%
- Coking coal (in millions of tons)	9.1	8.6	105.8%
- Steam coal (in millions of tons)	3.6	3.8	94.7%
Volume of intra-group sales (in millions of tons)(2)	4.5	4	112.5%
- Coking coal (in millions of tons)	4.2	3.7	113.5%
- Steam coal (in millions of tons)	0.3	0.3	100.0%
Revenues on sales of coal (in PLN millions)(3)	6,736.7	7,849.6	85.8%

(1) The share of hard coal in the total coal production in 2012 and 2011 was 57.5% and 58.2%, respectively.
(2) The volume of sales of coal produced by JSW S.A. which does not include the coal produced by other entities in the amount of 64.4 thousand tons in 2012 and 66.7 thousand tons in 2011.
(3) The figure presented does not include the Company’s revenues on sales of coal produced by other entities in 2012 and 2011 in the amount of PLN 26.6 million and PLN 29.6 million, respectively.

download table

In 2012, revenues on sales of coal produced by JSW S.A. reached PLN 6,736.7 million and were lower by PLN 1,112.9 million (14.2%) than those generated in the same period of the previous year, which is a consequence of the ongoing economic slowdown and a decrease in the prices of coking coal in the markets. The table below presents the prices obtained for the sale of coal produced by JSW S.A.

	2012	2011	Growth rate
Coking coal (PLN/t)	615.45	791.19	77.8%
Steam coal (PLN/t)	313.9	265.86	118.1%
Total (PLN/t)(1)	531.58	631.03	84.2%

(1) The prices pertain to deliveries of coal produced by JSW S.A. and include transportation costs amounting to, on average, PLN 11.07 per ton in 2012 and PLN 5.61 per ton in 2011.

download table

Coke

In the coke production area in 2012, the sale of coke and coal derivatives under a new trading procedure was launched. In accordance with the provisions of the new procedure, JSW S.A. sold 1.8 million tons of coke. Revenues on sales of coke and coal derivatives during the period under analysis reached PLN 1,873.6 million. The average obtained selling price of coke was PLN 938.00 per ton (FCA basis). The table below presents the actual volume of sales, the average selling price of coke and revenues on sales of coke and coal derivatives.

	2012	2011(3)	Growth rate
External sales volume (in millions of tons)(1)	1.8	-	-
Revenues on sales to external buyers (in PLN millions)(2)	1,873.6	-	-
Average selling price (PLN/t)(4)	938	-	-

(1) Volume of sales of the coke produced by the Group.
(2) Revenues on sales of coke and coal derivatives produced by the Group and sold by JSW S.A.
(3) JSW S.A. did not participate in sales of coke.
(4) FCA price.

download table