17 June 2014
Coal Energy (CLE PW) reported its latest set of adverse monthly results on June 16, this time for May. Its total coal production declined to a new monthly low of 29.8 kt (-11% m/m, -61% yoy). The May result was driven by a 23.5% m/m decline of thermal coal production to 11.1 kt, and 19% m/m decline in coking coal mining to 9.0 kt. In the 11 months of its 2014 financial year (ending in June), Coal Energy’s output dwindled 60% y/y to 622 kt, including a 62% yoy fall in underground coal mining to 512 kt and 41% yoy drop in coal production from waste reprocessing to 110 kt.
Alexander Paraschiy: The company’s figures are disappointing, given that the coal market is slightly recovering in Ukraine. Coal mining increased 11.2% yoy in May, and stockpiles of coal at thermal power plants decreased 30% yoy as of the beginning of May. The reason for the underperformance of companies like Coal Energy (small private miners that are not integrated in holding groups) is that they are the last in queues for those able to sell their coal to the domestic market. Priority is granted to private mines integrated with coal consumers and budget-subsidized state mines.
The good news is that Ukraine is currently in the heated stages of the latest natural gas war with Russia, which should prompt the government to conserve gas and try stimulating more consumption of steam coal. Theoretically, that may result in faster recovery of demand for coal closer to the year end. But the core question is whether Coal Energy will be able to keep its production facilities working by that time. As the experience of Sadovaya Group (SGR PW) suggests, it is very hard to recommission coal mines after their stoppage (Sadovaya shut down its mines in October 2012). At the moment, we see equal chances for Coal Energy to repeat the case of Sadovaya, or stay afloat until better times come.