Market and competitive environment

The market for metallurgical (coking) coal is global. Demand for metallurgical (coking) coal is primarily driven by the state of the steel industry, which consumes these commodities in blast furnaces in the pig iron production process. Despite years of research and implementation work on other methods of steelmaking, such as direct reduction of iron ore (DRI) or other technologies that reduce the proportion of coke (technologies based on gas, hydrogen), the blast furnace (BOF) process using coke remains dominant worldwide.

The main raw materials for the steel industry are coking coal and iron ore. Steel companies use their captive coke plants to convert coking coal into coke, which, along with iron ore, is the main component of blast furnace feedstock. In the PCI (Pulverized Coal Injection) technology, coal dust with appropriate parameters is blown into the blast furnace, which reduces consumption of coke and production costs and improves blast furnace efficiency. In many papers, different coking coals and PCI are referred to as metallurgical coal.

World production of metallurgical coals (1,096 million tons in 2022) is heavily concentrated in a few countries. China (676 million tons in 2022) and Australia (169 million tons in 2022) remain the largest producers of coking coal, with a combined market share of more than 77%.

Largest coking coal producers in 2022 [m tons,% estimates]

Source: International Energy Agency, ARP.

Largest coking coal producers in 2022

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China is the main country affecting the global level of demand for coking coal (since it represents 59% of global coking coal consumption), while global export supply is dependent on the main supplier, Australia (approx. 54% share of coking coal exports), which, together with the other major exporters - the US, Canada and Russia, together account for about 90% of coal supply to the global market. The total volume of metallurgical coal trade was about 299 million tons in 2022 (according to the Australian Government - Department of Industry, Science, Energy and Resources).

Chart. Largest exporters of coking coal (HCC, SSCC, PCI) in 2022 [m tons,% estimates]

Source: Australian Government – Department of Industry, Science, Energy and Resources

In 2022, the coking coal market was significantly affected by China’s coking coal import policy (import ban from November 2020), which:

• changed natural and historical trade flows,
• raised domestic prices for end users in China,
• created two separate trade markets:
  • CFR China market – served only by producers from outside Australia (mainly the US and Canada,
  • FOB Australia market for regions outside of China – potentially served by all overseas producers, but the only market for Australian products.

By the end of 2022, there were signs of a relaxation of China's restrictive policy banning imports of Australian coal into China, influenced by the shortage of domestic supply and high prices. In addition to policy decisions, the market was significantly impacted by volatile market and geopolitical conditions. They included the COVID-19 pandemic (the “Zero-Covid” policy in China) and the Russian invasion of Ukraine, which caused serious disruptions in the raw materials market.

Chart. Largest importers of coking coal (HCC, SSCC, PCI) in 2022 [m tons,% estimates]

Source: Australian Government – Department of Industry, Science, Energy and Resources

For the European steel industry, it is important to have a stable supply of its key raw materials at competitive conditions. Since there are no sufficient sources of supply within the European Union, the EU is virtually fully dependent on the imports of both iron ore and coking coal. Coking coal has been reinstated on the list of critical raw materials, which is updated at least every three years to reflect market and technological developments. The high risk of coking coal shortage or lack of supply is due to a limited number of its sources. The European Commission has been publishing the List of Critical Raw Materials (CRM) since 2011.

In the EU, only Poland and the Czech Republic produce coking coal. In 2020, decisions were made to close two of OKD’s four Czech mines by the end of Q1 2021 and the remaining two mines by the end of 2022. The change in the market situation after the embargo against Russia extended the period of their operation until the end of 2025.

JSW is the main producer of coking coal in the EU market and will become the only one by the end of 2025. Jastrzębska Spółka Węglowa SA is the only coal company in Poland to produce hard coking coal, whereas semi-soft coal is also extracted by PGG SA mines, albeit in relatively small quantities.

Structural deficit of coking coal on the EU market was addressed by imports chiefly from Australia, the US, Canada and Russia and, in recent years, from Mozambique and Colombia. Coal imports from Russia have been suspended since August 2022 as a result of the embargo imposed on Russia following its military invasion on Ukraine, which increases demand for overseas coal.

Before the war in Ukraine, Russia’s share of metallurgical coal imports to the EU was: approx. 10% for coking coal and approx. 30% for PCI coal.

In 2022, a total of about 14 million tons of coking coal was mined in the European Union, of which JSW mined about 11 million tons. In addition to JSW, coking coal is mined in PGG SA and OKD (Czech Republic).

Being a leading producer of coking coal in the European Union, JSW enjoys the so-called geographic rent, but is also subject to overall global market trends. Due to market volatility and the influence of global pricing mechanisms, transactions in the coking coal market are currently based on published coal indices for Australian and US coals.

JSW is the only domestic producer of “hard” coking coal and a major producer of “semi-soft” coking coal. Other domestic producers are mainly thermal coal producers, and semi-soft coking coal is mined only in PGG in small quantities (about 1.4 million tons in 2022).

Domestic consumption of coking coal is about 13-14 million tons and depends on the level of coke production at domestic coke plants.

Due to the market conditions, the domestic market is essential for domestic steam coal producers. Polish coal companies mainly produce coal for the generation of electricity and heat. The largest domestic coal companies, apart from Jastrzębska Spółka Węglowa S.A., are Polska Grupa Górnicza S.A. and Lubelski Węgiel "Bogdanka" S.A.

In accordance with its strategy, JSW aims to increase the production of coking coal and reduce the production of steam coal. Since JSW is not the leading steam coal producer in Poland, customers in the domestic commercial power generation segment perceive it as a complementary supplier.

The situation on the domestic market and the competition among domestic producers are vitally important for steam coal prices in Poland. The steam coal market in Poland depends mainly on the business conditions in the country, weather conditions, energy policy (electricity prices, biomass consumption, power generation from lignite, and the share of subsidized renewable energy). Coal prices for the domestic power industry follow, to a limited extent, the global trends of price indices set for spot transactions. The indices influence the general trend, while the main impact is exerted by the situation on the domestic market and competition between Polish producers. The prices for steam coal sold on the market are determined by the Polish Steam Coal Market Index (PSCMI). It is group of benchmark price indices of steam coal mined by domestic producers and sold on the domestic electricity market (PSCMI 1) and the domestic heat market (PSCMI 2) These indices are based on monthly ex-post data and express the selling price of hard coal (ex-mine) under quality conditions optimized for the needs of consumers. 

The level of electricity production from coal is crucial for the domestic demand for steam coal. In 2022, the production of electricity from coal decreased by 6% compared to 2021 and accounted for about 50% of domestic electricity production (by individual groups of power plants by fuel type).

Structure of electricity production in domestic power plants, volumes of cross-border electricity exchange and domestic energy consumption - gross volumes

Source: Polskie Sieci Elektroenergetyczne S.A. (Polish Power Grid Company)

Iron and steel metallurgy is the main and key buyers of coke, which is used mainly for the production of pig iron in the blast furnace process, while smaller grades are used for producing agglomerates from iron ore and ferro-alloys. This group of clients also includes foundries, which purchase high quality foundry coke.

Other types of coke are used in the smelting of non-ferrous metals (zinc, lead and copper), in the lime industry, chemical industry (mainly in the production of carbide), sodium industry (in the production of glass), food sector (sugar factories, drying plants) and in the municipal sector (heating coke).

The coke market, similarly to the coking coal market, is a global market. Coke production is increasing and the demand for coke depends mainly on the level of steel production in the blast furnace process and technological changes in the steelmaking industry. Coke production is mainly concentrated in Asian countries, which account for more than 80% of global coke production.

In 2022 standard coke flows were revisited on the global market. China consolidated its role as a net exporter. In 2022, total Chinese coke exports increased by 50% year-on-year to nearly 9 million tons, which was the highest level since 2018. The replenishment of inventories after Covid-19, followed by concerns about shortages after Russia’s invasion of Ukraine, were the main factors driving the growth of China’s coke exports in 2022.

Global coke production in 2022 versus the previous year moved down 1.9% to 685.5 million tons. In China it was approximately 473.4 million tons, which accounted for approx. 69% of global coke production,

Global coke consumption was 684.5 million tons in 2022 (over 17 million tons less than in 2021), with global imported coke consumption at just under 29 million tons in 2022, nearly 6 million tons less than in 2021, driven by lower production of steel and lower demand for coke.

Chart. Global coke production [m tons]

Source: CRU

In the coming months, the coke market will be impacted by the sanctions imposed on Russia after its invasion of Ukraine. Russia is a major exporter of coke. In 2022, it exported about 1.9 million tons, or 41% less than in 2021 (3.3 million tons), due to lower demand from Ukraine, which was suffering from the consequences of the war.

Chart. Largest coke producers globally in 2022 [%]

Source: proprietary data (production in Poland), CRU, customs data from China and Ukraine.

Chart. Largest coke exporters globally in 2022 [%]

Source: CRU.

Only 5-7% of the world's coke consumption takes place in the countries of the European Union, but the EU's share in the consumption of imported coke is about 9-11 million tons, which represents about 1/3 of the world's consumption of the imported raw material.

The decline in steel production in 2022 resulted in lower coke demand in EU27 countries, which were traditionally its largest importer. Coke consumption in EU27 fell 10% in 2022 versus the previous year to approximately 34 million tons. Coke production in this period also moved down 9% to approximately 32.5 million tons.

In the European Union, the majority of coke plants are integrated with steel mills, which satisfy their needs with their own coke production. JSW Group's coke plants are independent, which means that all coke produced is sold. There are several independent coke plants in other countries: Hungary, the Czech Republic and Bosnia. The advantage of the JSW Group over other coke producers is based on the availability of the raw material: JSW’s coke plants rely on coking coal supplies from the Group’s own mines. Although most European steel mills have their own integrated coke plants, they still require some imports. On average, European steel mills satisfy 95% of their demand for coke with the raw material produced in their own integrated coke plants.  When a producer reduces the volume of its steel production, it cuts off deliveries from external providers first, so when steel production at integrated mills weakens, independent coke plants that are suppliers of coke to these mills are most affected.

The structure of coke consumption globally and in the EU is similar: 80% of coke is used in blast furnaces to produce pig iron, while the remaining 20% is used outside of blast furnaces. The vast majority of coke is produced in coke plants owned by steelmakers. Production is for the internal needs of the steel mills that are part of these concerns. Only a small volume (slightly more than 4% of total production volume) is traded internationally.

In 2022, coke production in Poland was 8.2 million tons, down by 0.8 million tons, i.e. 8.9% compared to 2021 (9.0 million tons). With 3.2 million tons of production volume, the JSW Group accounted for 39% of domestic coke production in this period. Other coke producers in Poland include: ArcelorMittal Poland, Koksownia Częstochowa Nowa Sp. z o.o, WZK Victoria S.A. Out of those JSW and ArcelorMittal Poland are the main producers of blast-furnace coke in Poland.

In 2022, exports of coke from Poland was 6.4 million tons, down 10% compared to 2021.

Hydrocarbons market

Coke oven gas is a by-product of the coke production process. When purified, it produces coke tar, BTX, and ammonium sulfate or sulfur, depending on the technology used. The market share of the production of these products is usually the same as the market share of coke production. Coke tar and BTX are valuable raw materials for the chemical industry, while ammonium sulfate is a fertilizer. Coke oven gas is used to fuel coke oven batteries, while the surplus is used to generate electricity or sold to local consumers.