Domestic coking coal producers hurt by oversupply

State coal mining company Dzerzhinskugol temporarily suspended operations in March and sent its employees on vacation until April 1, Interfax reported yesterday. The cited rationale was problems with sales of coking coal to domestic consumers, which became visible back at the end of 2011. Dzerzhinskugol accounted for 2% of domestic coking coal production in 2011.

Roman Topolyuk: The news has implications for producers of coking coal in Ukraine, including Coal Energy (CLE PW), whose output is more than 20% coking coal. Coke output in Ukraine has been rather weak (-1% yoy in 2M12) and coke producers have preferred high-quality imported coal. As of the beginning of March, state producers have accumulated stockpiles of 400 kt of coking coal, which is the equivalent of around 20% of normal monthly consumption by coke plants. The trend, related to cycles in the steel sector, is likely to keep downward pressure on the domestic price of coking coal. The price of hard coking coal (grade “K”) was USD 170/t as of mid-March or 13% less than the 2011 average.