Macroeconomic environment

Despite the fact that the condition of the Polish economy remains largely tied to the situation in the European Union and in global markets, Poland continues to significantly outperform the eurozone in terms of GDP growth. A favourable situation on the labour market and household consumption above expectations constituted the key drivers for the Polish economy. According to research by the Polish Economic Institute, the good economic situation was acknowledged by businesses, 47% of which declared an increase in demand for their products or services and nearly 18% recorded a considerable improvement in access to external financing. GDP growth in the eurozone declined to 1.8%. The slowdown is mainly caused by global factors and the situation in Europe, e.g. trade wars and Brexit.

However, the favourable economic environment did not significantly improve the liquidity of businesses in Poland. In 2018, the number of bankruptcies and restructurings increased by 10.2% from 2017. A low positively influenced demand, however the lingering wage growth pressure and difficulties in filling vacancies caused certain limitations for businesses in using their capacities. Shortages of staff constituted a greater obstacle for businesses than fears concerning demand, which is a key factor in doing business.

Fuel prices on global markets in 2018 were approx. 60% higher in 2018 than in 2016. The scale of growth in crude oil, coal and gas prices in Europe was similar, whereas the price growth in non-energy raw materials was much weaker, at 8% in 2017-2018.

For Jastrzębska Spółka Węglowa, of key significance are those areas of the economic environment that can substantially impact the shape of the Group’s further development, i.e. the coal, coke and steel markets.

The global consumption of metallurgical coal reaches approx. 1.2 billion tonnes annually. Asia is the main consumer, with over 82.5% share (950 million tonnes). EU countries consumed about 67 million tonnes in 2018, i.e. around 6% of global consumption.

Demand for coking coal in the European Union was estimated by CRU at approx. 67.3 million tonnes in 2018, including 42.0 million tonnes for hard coking coal (62.4%) and 11.8 million tonnes for semi-soft coal (17.5%) and 13.5 million tonnes for PCI (20.1%).

Australia’s Department of Industry, Innovation and Science estimates that within the next five years global trade in coking coal will rise from 308 million tonnes in 2017 to 334 million tonnes in 2023.

Supply-side problems on the part of Australian producers caused coking coal prices to remain high in 2018. In 2018, the average daily price for the TSI Premium HCC index was 206.5 USD/t (+12% y/y), with a range from 262 to 170 USD/t. This was the highest average recorded since 2011.

The high prices in 2018 fuelled mergers and acquisitions in the coal industry.

Spot price development of coking coal grades and daily quotations of Chinese blast furnace coke in 2018
[USD/t FOB]

Global coke production in 2018 was 1-2% lower than in the preceding year, in which it reached 636 million tonnes. Peak coke production was recorded in 2014, when it reached 688 million tonnes, and has been in systematic decline since. Over the past five years, global coke production has been declining by 2.2% annually. This is mainly caused by lower production in large furnaces and environmental protection requirements for the coal and coke industries.

Approx. 80% of global coke consumption comes from Asian countries and just 6% from the EU. In the European Union, the use of coke is at 41-43 million tonnes. The largest EU consumers of coke are: Germany, Austria, Czech Republic, Italy, Romania and England. The largest producers of coke in the EU are coking plants integrated with steel works – large steel-makers, including: ArcelorMittal, ThyssenKrupp, Salzgitter, voestalpine, Tata Steel and some non-integrated coking plants such as GIKIL, OKK, KCN and JSW.

In 2018, global production of steel increased by 4.6% to 1 808.6 million tonnes (up by 78.8 million tonnes). The largest growth in production was recorded in Asia (+67.9 million tonnes, i.e. +5.6%), including in China to 928.3 million tonnes (+57.4 million tonnes, i.e. +6.6%). Steel production in Europe did not increase by much, reaching 311.8 million tonnes (+0.1 million tonnes). Steel production in EU countries declined slightly to 168.1 million tonnes (-0.4 million tonnes, i.e. by 0.3%).

Domestic consumption of steel was approx. 15 million tonnes. The prices of basic steel products on the European market were stable in 2018. EU steel markets in 2018 grew at a relatively high pace and were supported by good operating results in sectors using steel.