Poland Mining Report Q3 2009 - new market report recently published

Poland has a healthy mining industry even though its contribution to GDP is only in the region of 3%. The country hosts large deposits of coal, and supplies about 3% of the world?s bituminous coal demand. Its copper reserves add up to 5% of global reserves. The nation is also a significant producer of silver, responsible for nearly 6% of global silver production. The Polish mining equipment and services industry is also gaining international repute, especially in Russia, Ukraine, China and Australia. According to reports in the Warsaw Business Journal, Polish coal mines are finding it difficult to sell their production as domestic energy producers are increasingly turning towards lower-cost foreign imports. In Q109, coal imports were three times the level seen in Q108. Monthly purchases of foreign coals have now reached 1.43mn tonnes. Steelmakers and power plants are sourcing cheaper coal from Czech Republic, Russia and even the US as global prices for the mineral tumble. If the current trend continues, then by the end of 2009 Poland will import 20mn tonnes of coal, twice 2008 levels. However, Poland?s indigenous coal sector is partly to blame for the situation. In 2008, mines could not keep up with the country?s energy demands. Consequently in order to ensure reliable supplies, power producers began importing from other countries. In Q109, it was reported that around 2mn tonnes of Polish coal was left waiting for a purchaser. The Ministry of Economy believes that the situation may deteriorate further with an 18% drop in sales of domestic coal to the power industry. Yet, the situation will not improve until Poland?s coal sector can regain competitiveness on price. Currently, coal prices in ports such as Amsterdam and Rotterdam are lower than coal from Silesia. In June 2009, Polish chemicals company Pulway announced that it will be looking to purchase shares when coal miner Bogdanka launches its Initial Public offering (IPO). Pulway?s interest is thought to stem from the fact that the two companies are developing a coal gasification joint venture, which is designed to reduce Pulway?s reliance on polish energy company PGNiG. Poland?s current centre-right government is looking to push through a number of major privatisations over the next few months in order to inject some capital into the economy and to improve efficiency and competitiveness. Bogdnaka is hoping to use PLN450mn (US$140.5mn) raised from the IPO to finance its own investment plans. The mine, which is based in Lublin, desperately needs to modernise its operations and improve its infrastructure if it wants to hit its stated target of doubling coal production from 5.5mn tonnes in 2008 to 11mn tonnes in 2014. Bogdanka has a 6% share of the domestic coal market. favourable local conditions means that the company can extract the resource at a lower cost than its rivals. Production costs per tonnes are around PLN100 lower than for its rivals, giving Bogdanka a sizeable competitive advantage. The high cost of primary aluminium production prompted Impexmetal Group to permanently close the country?s only aluminium smelter, located in Konin, in February 2009. The decision to halt aluminium smelting after 43 years in business was taken in the context of high electricity prices that had made the plant unprofitable; it consumed 0.8-0.9% of all the electricity produced in Poland. Production was stopped after 43 years in business with the firm?s foundry and rolling mill now reliant on imported primary aluminium. The plant is due to be dismantled by end-July 2009. While Poland has exited aluminium for good, scrap recycling is a promising growth area and has the potential to keep aluminium imports down and boost self-sufficiency. Industry Forecast As a result of its mineral wealth, Poland has been disproportionately hit by the recent slump in commodities prices. Indeed, in 2008 BMI estimates that the mining sector contracted by 5% in real terms, while we also forecast a 1% regression for 2009. Although growth is expected to pick up towards the end of the forecast period, it is still expected to be on the low side, with the market reaching a value of just US$9.84bn by 2013, compared with US$8.4bn in 2008 Global overview On page 9 of this report, BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this means for the industry moving forward.