DTEK Energy guides 7.3% yoy increase in hard coal mining

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) is planning to mine 24.6 mmt of hard steam coal in 2018, according to
its newsletter published on Jan. 19. This would be 7.3% more than it mined in
2017. In the last year, the holding was able to show a 8.2% yoy growth in hard
coal mining to 22.92 mmt, while its total coal mining (including the production
from anthracite mines that DTEK has not controlled since March 2017) amounted
to 24.82 mmt.

Ukrainian state mines are going to slightly reduce
their coal production in 2018, according to DTEK. According to the forecasted
energy balance for 2018 prepared by Energy Ministry, coal-fired thermal power plants
are going to boost electricity generation 8.2% yoy to 48.8 TWh this year.

Alexander Paraschiy: We see
DTEK’s production guidance for 2018 as realistic, and there is even some room
for outperforming the plan. But even such growth is not enough to meet domestic
coal needs amid an expected drop in coal mining by state companies, which will
lead to a higher deficit of steam coal in Ukraine and cause increased needs of
imports. The forecasted electricity price assigned for thermal power plants by
the regulator in late December assumes Ukrainian power plants will import 4.2
mmt of coal this year, while real import needs could be higher.

So the possible rise in needs to import expensive coal
may lead to a further hike in the average achieved prices for electricity to be
produced by thermal power plants, which will benefit DTEK. So far, we remain
bullish on DTEKUA bonds.