- These several million tons of remaining coal are not fuel coal, but mainly coal intended for the heating and energy sectors. This is an assortment that, in accordance with the currently applicable coal quality standards, cannot even be sold for combustion in heating installations with a power of less than 1 MW, and households fall into this category.
- The level of stocks in the basements of individual customers is exceptionally high – it can reach up to 1 million tons – notes Łukasz Horbacz, president of the management board of PIGSW. – In our opinion, this is more than 2x more than usual at this time of year, which, in our opinion, may be the result of an exceptionally mild winter, "in stock" purchases in 2022 and 2023 and the aggressive sales policy of the previous management board of Polska Grupa Górnicza in the fourth quarter of last year.
- PIGSW estimates that the real demand for fuel coal to heat homes is approximately 5.5 million tons in 2024. So we have a market estimated at approximately 6.5 million tons, 1 million tons are in household basements, 3.0 million tons will be produced by domestic mining. If we counted only on domestic production and stocks at home, there would be 2.5 million tons missing per year to fully meet the market needs.
- Currently, there are 25-50% fewer active warehouses. Private distributors who remained on the market, "massacred" financially by the price rollercoaster and manual control of the market by politicians in 2022/23, are no longer afraid to take risks, and as a result, they keep inventories at a symbolic level.
- However, let us optimistically assume that a total of approximately 0.5 million tonnes of fuel are stored in fuel depots, i.e. 1/3 of the standard level of stocks at this time of year. So we still have a deficit of about 2.0 million tons.
- The simple numbers above show that internal supply will not meet demand, and imports, effectively held back by low prices and an excess of energy fines, are unlikely to fill these gaps on a larger scale. The conclusion seems quite obvious – the probability of an increase in coal prices should be assessed as high
Since the beginning of the year, the media have been reporting that millions of tons of coal are lying on the piles of domestic producers, state importers and the energy sector.
Reading reports like this, one might be tempted to assume that the price of coal at fuel depots should decrease.
So why do we observe the opposite phenomenon, i.e. the prices of fuel coal in warehouses and online stores have been systematically increasing since the April low?
The answer is quite simple – these several million tons of coal are not fuel coal, but mainly coal intended for the heating and energy sectors. This is an assortment that, in accordance with the currently applicable coal quality standards, cannot even be sold for combustion in heating installations with a power of less than 1 MW, and households fall into this category – explains Łukasz Horbacz, president of the management board, Polish Chamber of Commerce Coal Sellers (PIGSW).
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Will domestic heating coal be enough to meet demand in the upcoming heating season?
The changes taking place on the market are so dynamic that few people can precisely say what the demand for fuel coal in Poland will be by the end of the year.
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In times before the COVID-19 pandemic, it was assumed that the entire municipal and residential market was 9 million tons +/- 1 million, depending on how cold and long the heating season was. This estimate coincided with data from the Central Statistical Office regarding the number of households heating with coal.
However, let us assume conservatively that as a result of replacing heating sources, this market has already shrunk by almost 30%, which would mean that this year the demand is around 6.5 million tons, which is consistent with the estimates presented by market commentators. The level of stocks in the basements of individual customers is exceptionally high – it can reach up to 1 million tons – notes Łukasz Horbacz, president of the management board of PIGSW. – In our opinion, this is more than 2x more than usual at this time of year, which, in our opinion, may be the result of an exceptionally mild winter, "in stock" purchases in 2022 and 2023 and the aggressive sales policy of the previous management board of Polska Grupa Górnicza in the fourth quarter of last year. Therefore, we can estimate the real demand in 2024 at approximately 5.5 million tons.
In 2024, approximately 3.0 million tons of fuel coal should reach the market from domestic mines. The problem of excess fines on the market forces domestic producers to reduce production.
Reduced mining results in reduced production of fuel coal, which is in fact a by-product of the production of fine coal for the energy industry (fuel coal is produced during the extraction of coal fines).
The gigantic problem with excess coal dust may result in a reduced supply of fuel coal. Moreover, mining companies have been struggling with financial problems for many months – so no one is thinking about investing in increasing production capacity, especially in the context of the EU decarbonization policy and the already mentioned problems with excess fines on the market. As misfortunes like to come in pairs, the fines extracted by some producers are currently so low in calorific value that in order to fulfill their contracts, they will be forced to crush fuel coal into fine dust to increase its quality parameters, which further contributes to reducing the availability of fuel coal for consumers. households – notes Łukasz Horbacz, president of the management board of PIGSW and adds:
So we have a market estimated at approximately 6.5 million tons, 1 million tons are in household basements, 3.0 million tons will be produced by domestic mining. If we counted only on domestic production and stocks at home, there would be 2.5 million tons missing per year to fully meet the market needs. Let's check how much fuel coal is currently stored in fuel depots.
According to a representative of PIGSW, coal depots are empty
Before 2022, there were almost 5,000 active coal depots operating in Poland. This number includes both warehouses of large wholesalers and importers, as well as small local warehouses.
It is safe to say that on average each of them stored 250-300 tons of raw material. On a national scale, this provided a buffer of 1.5 million tons of raw material collected locally, close to the final consumer.
Currently, there are 25-50% fewer active warehouses. Private distributors who remained on the market, "massacred" financially by the price rollercoaster and manual control of the market by politicians in 2022/23, are no longer afraid to take risks, and as a result, they keep inventories at a symbolic level. However, let us optimistically assume that a total of approximately 0.5 million tonnes of fuel are stored in fuel depots, i.e. 1/3 of the standard level of stocks at this time of year. So we still have a deficit of about 2.0 million tons. Only import can save the situation – notes Łukasz Horbacz, president of the management board of PIGSW.
Will imports provide fuel coal to heat all homes in the upcoming heating season?
PIGSW representatives are afraid that this may be a problem. The directions of import of good quality fuel coal are mainly Kazakhstan and Colombia. We are talking about fuel coal, with parameters often better than domestic coal, but at the same time it is relatively young coal, which translates into its brittleness.
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According to the president of PIGSW, as a result, 30-80% of the cargo from each ship consists of fine coal – the same fine coal that is already too much on the market and whose price is skyrocketing. The loss incurred on the semi-finished product sown from the imported product must be compensated by the higher price of fuel coal.
Until recently, this business was on the verge of profitability, which is why the import of fuel coal has been carried out on an ongoing basis in recent months. As if that were not enough, the prices of imported semi-finished products have increased since the price trough in February this year, from USD 94 to USD 104, and sometimes even to USD 120 per tonne, with delivery to ARA ports (Antwerp, Rotterdam, Amsterdam). Therefore, until there is an appropriate price impulse from the domestic market, imports will not flow more widely, and let us remember that we estimate the demand for imported fuel coal at approximately 2 million tons. To sow it in such quantities, you need to import 4-6 million tons of unsorted material, which is not an operation that can be done with the proverbial "snap of a finger" – notes Łukasz Horbacz, president of the management board of PIGSW.
Finally, the question remains – where should coal fines sown from imported coal be placed on a market where there are already several million tons of these fines?
This is a particularly important question in the context of the decreasing share of coal-fired units in energy generation, which are systematically replaced by electricity from photovoltaic and wind installations. Probably for this reason, on April 8 this year. The Minister of Industry, Marzena Czarnecka, announced a ban on coal imports by State Treasury companies (PGE Paliwa, Węglokoks). And it should be remembered that they constituted the widest stream of coal imports to Poland since mid-2022 – emphasizes Łukasz Horbacz, president of the management board of PIGSW.
The tense geopolitical situation – the war in Ukraine, the situation on the Israel-Palestine-Iran line, the conflict for hegemony on world markets between the US and China – are many flashpoints that may have an additional impact on the sudden increase in prices of energy raw materials, including coal, in the near future. time.
History repeats itself. Are we facing a spiral of rising fuel coal prices?
If we trace the historical movements of fuel coal prices in stockpiles, then (apart from exceptional years, such as 2022, when the hastily introduced embargo on Russian coal in April led, on the one hand, to an immediate reduction in coal supply, and on the other to increased demand, which ultimately led to a sharp increase in prices), coal in normal years was always the cheapest in spring, and its prices systematically increased as the heating season approached.
Differences in prices between the spring low and the early autumn high were usually in the range of 15-30%. The scale of growth resulted mainly from the supply and demand situation, the cost of money frozen in goods (interest rates) and the scale of degradation of the raw material stored by traders – notes Łukasz Horbacz, president of the management board of PIGSW.
The Ministry of Climate will add its own quality standards, which will limit access to fuel coal
As we remember, on April 25, the Ministry of Climate announced consultations on changes to the regulation regulating coal quality standards for households and installations below 1MW.
The Ministry's original assumption was that the standards were to be strict and would come into force before the start of the next heating season. Although the standards were slightly relaxed after initial consultations, it should be remembered that the currently applicable standards are a compromise developed through painstaking efforts.
Any further tightening will eliminate some coal from the market. Polish coal will be eliminated first – imports are much more flexible in this field. As a result of changes in quality standards, a certain volume of fuel coal will fall out of the market. Less coal means higher prices. The Ministry of Climate does not seem to be particularly concerned about this. The industry, on the other hand, views this situation with horror, as evidenced by the increased activity in the fight to relax the solutions included in the draft of new quality standards for coal – either by trade unions or the management boards of domestic producers – notes Łukasz Horbacz, president of the management board of PIGSW.
Which direction will fuel coal prices go? Up or down?
It seems that domestic producers are very aware of the market situation and have already signaled the direction. The prices at which coal was sold in early spring were in most cases very close to the production costs, perhaps even below the profitability limit for some producers.
Since this low, wholesale coal prices have been raised several times by producers such as Południowy Koncern Węglowy, Węglokoks Kraj and PG Silesia. Polska Grupa Górnicza SA, which is the largest player on this market, with its new "Spring Discounts 2024" promotion and its pricing policy, also shows quite clearly that if you want to buy coal, buy it in spring – notes Łukasz Horbacz, president of the management board of PIGSW. – As for importers, however, the "shallowness" of the market resulting from the low level of inventories and the inability to significantly replenish them in a short period of time means that each wave of increased demand translates directly into an increase in prices, which we have seen over the last few weeks.
There are growing concerns that heating coal prices will skyrocket again in September 2024
Taking into account all the arguments listed above, one could come to the conclusion that a scenario in which fuel coal prices will fall is very unlikely until the start of the heating season. So will prices stay at their current level?
The simple numbers above show that internal supply will not meet demand, and imports, effectively held back by low prices and an excess of energy fines, are unlikely to fill these gaps on a larger scale. The conclusion seems quite obvious – the probability of an increase in coal prices should be assessed as high. According to economic principles, the shorter the period in which consumers focus on purchasing "black gold" in conditions of limited supply, the greater the pressure on its price – notes Łukasz Horbacz, president of the management board of PIGSW.
It was already cheaper… PIGSW forecasts an increase in the prices of coal and eco-pea coal
Spring was probably the best time to buy heating coal this year. Taking the above-mentioned arguments into account, if someone has not done so yet, we believe that it would be advisable to purchase coal now.
It is highly probable that in this way we will avoid the need to buy fuel at even higher prices during the heating season. Unless we are facing another warmest winter of the century or another government action that will "socialize" the problem of rising prices… We don't know that, however – sums up Łukasz Horbacz, president of the management board of PIGSW.
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