Brief on the Competition on the Coking Coal Market

Russian coal reserves are estimated at 278.4 bln tons, of which coking coal constitutes 50.1 bln tons (18%), with 40.9 bln tons (81,6%) of explored reserves.



Explored coking coal reserves are distributed irregularly throughout the territory of Russia, in locations that are remote from the consumers of the Central and Urals regions. Coking coal production is located in the three main carboniferous basins: Pechorsky (12% of production), Yuzhno-Yakutsky (2%) and Kuzbass (85%).



Coking coal is the raw material of strategic importance for metallurgical and by-product-coking industries, and is mainly processed into metallurgical coke.



Specific feature of the Russian coal industry - considerable control exercised by the metallurgical sector over the coking coal market. Russian metallurgy consumes over 50% of coking coals extracted in Russia and produces more than 80% of coke. There is strong correlation between the prices on coking coal and metal products.



In 2005 Russia extracted 69892.80 thousand tons of coal, of which 39761.10 thousand tons were sold on domestic market, 9992.95 thousand tons sent for export while 866.10 thousand tons were imported.



Currently there are more than 10 big players on the coking coal market; most of which are coal extracting companies - members of metallurgical holdings, or independent coal extracting and processing complexes.



Main suppliers of coking coal and its concentrates are trading houses - members of vertically integrated structures formed by metallurgical companies that combine coal extracting and processing capacities. Sometimes coal is supplied directly from opencast pits/mines while concentrate is supplied by the processing plants accordingly. In most cases coking coal needs processing that is carried out at the processing plans.



Main consumers of coking coal are the processing plants, which produce coal concentrate. The coal concentrate produced as a result of processing run-of-mine coal serves as the raw material for coke production.



Main consumers of coal concentrate are metallurgical integrated plants, as well as by-product coke plants that use coal concentrate for producing coke with the average portion of coking coal concentrate of 98%.



Occasionally by-product coke plants and metallurgical integrated plants buy run-of-mine coal, rather than concentrate, and process it independently.



Sale analysis of coking coal and concentrate has shown that there is no tight «link» between the extracting company and consumers. Apart from the coal extracted at the enterprises of its own group of persons, the consumer of coking coal - a processing palnt - can also process the coal that belong to other groups of persons. In separate cases, each processing plant dispatches to different consumers.



Considerable portion of coking coal concentrate is exported - 20.08% of total coking coal supply in 2005.



Due to considerable transportation component in the coal price and complicated geological factor of coking coal occurrence, Russia plays a rather modest role on the world market of coking coal (4.57% of the total world market).



Coking coal market is a moderately concentrated one, with rather developed competition. Among several market players with relatively equal market shares, it is possible to clearly distinguish the leaders on extracting, selling and producing concentrate as well as supplying it for export. At the same time, none of the coking coal and coke producers can significantly influence the market performance - the coking coal market depends on the demand/ supply balance and is highly sensitive to the global trends.