Market and competitive environment

The coking coal market is global as demand for coking coal and coke largely depends on the condition of the steel industry, which uses the commodity in blast furnaces to produce pig iron  - over 70% of steel is produced in blast-furnace technology. Coking coal is usually processed into coke at large steel-makers’ own coking plants and non-integrated (commercial) coking plants.

Global coking coal production (1 139.5 million tonnes/year) is highly concentrated in several countries. The largest producers of coking coal are China and Australia, which together have a market share of more than 75%. The largest exporters of coking coal include:

Table. Coking coal producers in 2019

Chart. Largest producers of coking coal in 2019

China, the world’s largest producer of coking coal, is also a major importer of this raw material. All of its production ends up on the domestic market.  Australia - the second largest producer of coking coal, behind China - exports nearly 100% of its production.

Global demand for coking coal depends on a single customer - China, whereas global supply depends on the main supplier - Australia, which together with other major exporters - USA, Canada and Russia - account for over 90% of coal supplies to the global market. The total volume of trade in coking coal is approx. 340 million tonnes (according to CRU data for 2019).

The level of global coking coal imports - aside from the supply-demand relationship between China and Australia - is also driven by one-off events such as adverse weather conditions, logistics or geological problems. These events are temporary and lead to alternative sources of import being activated.

Chart. Largest importers of coking coal in 2019

Guaranteed stable deliveries of key raw materials at competitive prices are important to the European steel industry. A lack of sufficient own sources of supply means that the European Union is almost entirely dependent on the import of both iron ore and coking coal. In 2017, the European Commission emphasised coking coal’s critical raw material status by placing it on its list of 27 raw materials that carry the risk of supply shortages and the effects of which for the economy would be greater than in the case of other raw materials. The list is updated every three years.

Currently in the EU coking coal is generally produced only in Poland and the Czech Republic, which means that the European Union has historically had and continues to have a structural deficit of coking coal. Demand from the steel industry exceeds the production capacities in EU countries by approx. 40 million tonnes. The deficit of coking coal on the EU market is mainly made up by imports from Australia, USA, Canada, Russia and in recent years Mozambique and Colombia.

In the European Union, aside from JSW (with an annual output of approx. 11 million tonnes), coking coal is also mined by the Czech-based OKD (3.2 million tonnes of coal mined in 2019), which is systematically shutting down its mines. That company will conduct mining activities until 2030 at the latest.

In 2019, Great Britain announced that it will begin mining coking coal at West Cumbria Mining (WCM), a mine that is currently being built and is expected to be put into service in 2024. The British mine is expected to eventually produce approx. 3.5 million tonnes per year. Initially, WCM will produce about 0.5 million tonnes, with 80% sold on the European market.

As leading producer of coking coal in the European Union, JSW, while benefiting from a geographic advantage, is subject to general trends on the global market. With no quarterly benchmarks for coking coal, the determinant of global coking coal prices, having been published since Q2 2017, price negotiations are currently based on daily quotations for Australian or American coal.

Chart. JSW's share in coking coal production in Poland, EU and globally

JSW is the only domestic producer of hard coking coal and a major producer of semi-soft coking coal. The other domestic producers mainly produce coal for energy purposes, with coking coal having a small share of their total production volume.

Coal companies in Poland usually produce coal for electricity and heating generation purposes. The largest domestic coal companies, aside from JSW, are: Polska Grupa Górnicza and Lubelski Węgiel "Bogdanka."

JSW Group is a major supplier of high-quality coking coal on the domestic and European market. The remaining portion of the coal produced by JSW is coal for energy purposes. Coal for energy purposes is used by JSW mainly to generate electricity and heating for own purposes. The remaining part of coal for energy purposes is sold to domestic energy enterprises. JSW Group, not a major domestic producer of coal for energy generation, is seen by customers in the domestic energy generation segment as a supplementary supplier, in connection with which JSW cannot independently shape market realities, rather having to adapt to the existing ones.

Chart. JSW's share in production of coal for energy generation purposes in Poland

The price of coal for energy generation purposes in Poland is largely driven by the situation on the domestic market and competition between domestic producers. The market for coal for energy generation purposes in Poland is largely dependent on the domestic economic situation, weather conditions, energy policy (prices of electricity, use of biomass, lignite-based electricity generation, share of subsidised renewable energy). Prices for coal for energy generation purposes to a limited extent follow the global trends in price indexes for spot transactions. While indexes set trends, the situation on the domestic market and competition between domestic producers are of key significance. Market prices for coal for energy generation purposes are determined by PSCMI (Polish Steam Coal Market Index). This is a group of price indicators for benchmark coal for energy generation purposes produced by domestic producers and sold on the domestic energy market (PSCMI 1 index) or the domestic heating market (PSCMI 2 index). These indicators are based on monthly ex-post data and express the sales price for hard coal (ex-works), with quality parameters optimised for customer needs.