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

2.3. Sales markets

2012 was a year of economic slowdown which had a significant impact on the coal, coke and steel markets. This slowdown once again demonstrated the existing risk of market cyclicality affecting the Company. Recent years have proved increasingly shorter periods of the duration of market cycles. The most recent serious global economic crisis occurred in 2009 with a different duration and intensity in various regions of the world. The domestic and international coal and coke markets are subject to a number of factors remaining beyond the Company’s control. In 2012, and in particular in the second half of the year, the international metallurgical market was very difficult. In the coking coal – coke – steel supply chain, lower demand for steel translated into a decrease in prices and revenues on sales of coke and coking coal. This was particularly noticeable in the European market as crude steel production in the European Union in Q3 2012 was over 10% lower than in Q2 2012, and 2% lower in Q4 2012 than in Q3 2012. In H2 2012, the world’s crude steel production capacity utilization rate kept declining (July: 79.4%, September: 77.7%, December: 73.2%). In Europe, almost a third of all blast furnaces installed were shut down. Coke prices in the European market kept declining steadily. For instance, in November 2012 the price of blast furnace coke in the European market averaged USD 270 per ton based on CFR Northern Europe and was USD 135 per ton (33%) lower than in November 2011. The situation in the coking coal market was similar. In Q4 2012, the benchmark price of coking coal decreased by USD 115 per ton (40%) compared to Q4 2011. A similar situation was observed in the coking coal spot market where the price in November 2012 was USD 102 per ton lower than in November 2011. At the end of year, the downward trend in spot prices stopped, which favorably affected the mood for 2013 forecasts.

Despite this unfavorable market environment, the Company achieved its sales objectives in terms of volume, having realized 99.6% of the planned sales of coal. In 2012, not only did JSW S.A. manage to maintain the volume of deliveries to its existing customers, but also established cooperation with new trading partners.

The following table presents a comparison of the volume of coal supplies broken down by geographical area and type of end user:

	2012	2011	Growth rate
Total coal sales (in millions of tons), including:	12.7	12.4	102.4%
Coking coal (in millions of tons)	9.1	8.6	105.8%
- Poland	7.7	7.4	104.1%
- European Union	1.1	1.2	91.7%
- Other countries	0.3	-	-
Steam coal (in millions of tons)(1)	3.6	3.8	94.7%
- Poland	3.4	3.6	94.4%
- European Union	0.2	0.2	100.0%

(1) The volume of sales of coal 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.

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The Company’s major customers include JSW S.A.’s affiliate Koksownia Przyjaźń and ArcelorMittal Group entities for which revenues on sales of coal accounted for 27.8% and 32.1% (2011: 33.3% and 30.2%) of JSW S.A.’s total revenues on sales of coal, respectively. Other customers, whose individual shares did not exceed 10.0% of JSW S.A.’s revenues, generated the remaining 40.1% (2011: 36.5%) of the Company’s total revenues on sales of coal.

In 2012, JSW S.A.’s coke sales structure broken down by geographic area was as follows(1):

	Volume of coke (in millions of tons)	Share	Revenues(2) (PLN million)	Share
Total coke sales (in millions of tons), including:	1.8	100.0%	1,873.6	100.0%
- Poland	0.4	22.2%	375.7	20.1%
- European Union	1.3	72.2%	1,442.7	77.0%
- Others	0.1	5.6%	55.2	2.9%

(1) No reference to 2011 – the Company’s trading activity was based on a different organizational chart.
(2) Revenues on sales of coke and coal derivatives produced by the Group’s coking plants and sold by JSW S.A.

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The share of revenues on sales of coke to 5 main customers was 68.1% of total revenues in this segment. Other buyers whose unit share did not exceed 10.0% of revenues, generated the remaining 31.9% of total revenues of the coke segment.