Coal extraction in Poland - essential but declining industry

Publication date : 12.07.2013 An industry in crisis - Polish mines extracted 79.2 mln t of black coal last year, which means a drop of 3.5 mln t against 2011. Out of the total, steam coal made up 67.5 mln t, whereas the extraction of coking coal The sales of coal have also dropped in 2012, down by 5.4% y/y to 72 mln t (vs 76.2 mln t sold in 2011), of which 64.6 mln t was sold on the domestic market and 7.4 mln t was exported, the Ministry of Economy data released in April showed (All the data provided by the Ministry of Economy of Poland, unless stated otherwise). The unsold coal added to the stockpiles and brought about an all-time record in stockpiled coal of 8.4 mln t at the end of March 2013, an increase from 3.8 mln t at the end of March last year. Steam coal represented as much as 87% of the total. Analysts point out that such large amount of stockpiled coal, evinces last years economic slowdown and declining demand for coal. In addition, Polish power plants have also stockpiled additional 7.6 mln ton of coal, which is sufficient to produce energy for 57 days.

Source: Central Statistical Office (GUS), prepared by PAP Coal production becomes less and less profitable as a number of factors put pressure on the industry. Firstly, the costs of coal companies operations spiked by 9.6% in Q1 2013 y/y, with the coal production costs increasing by 5.3%. Declining coal prices have also deteriorated the situation: an average price of one tone of coal dropped by 12.3% in Q1 2013. This mix of higher costs and lower prices have drastically influenced the financial performance of Polish black coal mining companies their combined profit declined from to PLN 1.7 bln from PLN 3 bln recorded in Q1 2012. All of the factors mentioned translate into a crisis of the coal industry. In the big picture, Polands coal production has been declining steadily ever since 1992, when Poland was among the three biggest black coal producers in the world after China and the USA. Tackling the problems increasing exports, restructuring employment Coal extraction in Poland - essential but declining industry 1

(EN) - Ministry of Treasury As the mining companies in Poland suffer financially, several countermeasures are planned to be introduced to tackle the current crisis within the industry. In order to reduce high coal stockpiles, the miners intend to increase exports. Kompania Wglowa (Coal Company), the biggest producer of black coal in Europe intends to increase its exports by 50% to 9 mln t of black coal this year, announced Joanna Strzelec-obodziska, the companys CEO in March. Already in 2012 Polish coal exports increased 7.4 mln of black coal was exported in 2012 against 5.7 mln t in 2011. Simultaneously, coal imports declined in the period less than 10.1 mln t of coal was imported into Poland in 2012 against 14.4 mln t in 2011.

Coalfields (black coal) in Poland. Source: Tomasz Majtyka, Portal CBGD (kontury z), 2013 The Ministry of Economy, which supervises state coal miners, points out that coal companies should undertake some restructuring measures in order to improve profitability. Coal companies should very rigorously take care of their operating costs. The mines will not fire workers, however at the end of the year, the overall number of new employees will be lower by several thousand people than the number of those leaving for retirement, deputy Economy Minister Tomasz Tomczykiewicz said. Exports are the only hope for Polish coal? National power plants are the largest recipients of Polish coal: last year the energy companies bought 37.1 mln t of coal. However the amount of electricity produced from black coal decreased since 2011 by almost 7%, from 90.8 terawatt hours (TWh) to 84.5 TWh in 2012. On the other hand, the energy produced from lignite (brown coal) increased last year by 3 TWh from 52.6 TWh in 2011, which is due to the opening of new power block in Bechatw. Nevertheless, both types of coal are the cornerstones of Polish energy production the share of lignite and black coal in the energy production still exceed 90%.

Coal extraction in Poland - essential but declining industry

(EN) - Ministry of Treasury

Coalfields (lignite, brown coal) in Poland Source: Tomasz Matyjka, Zoa wgla brunatnego w Polsce, 2013 Although the mining companies are confident of steady sales of coal to the national power plants, the energy production decrease poses a problem. Last year overall energy production reached 159.8 TWh against 163.1 TWh in 2011. Less energy means less coal used to produce it and bigger stockpiles of unsold coal. The political environment is also unfavorable for coal producers, as European Union takes an effort to transform European energy infrastructure towards more environmentally-friendly modes of production. In addition, Poland obliged itself to the European Union to decommission old coal-fueled power blocks of total capacity of 5,000 MW by 2015 and yet others by 2020. The national energy policy introduced by PM Donald Tusks government in 2008, in line with European framework, assumes a 40% increase of energy production from gas, a bigger share of energy from renewable sources and simultaneous reduction in the use of black coal by ca. 16.5% and lignite by 23% by 2030. The governmental projections assume that by that year Poland will need about 64 mln t of black coal (approximately the same as last years consumption) and 45.7 mln t of lignite. As domestic demand diminishes, coal producers look at long-term opportunities to redirect part of its production to foreign markets. However, Polish coal prices cannot compete with cheap coal from South America and South Africa, where it is extracted from open pits. Profitability of Polish coal in recent years oscillated between EUR 5-10 per ton, but because of higher production costs and lower prices it has shrank and is virtually close to zero if the costs of transport for export are added. The analysts therefore claim, Polish producers have to look for geographically close customers, so that coal transport costs do not consume the profit margins. Source - Polish Press Agency, Economic Service

Coal extraction in Poland - essential but declining industry