Two blasts on Saturday night-Sunday morning at Russia's largest coal mine Raspadskaya, owned by Raspadskaya Coal Company (Raspadskaya), have caused the death of at least 60 people and serious damage to the mine itself, the rebuilding of which will take at least one year.
According to Aman Tuleyev, governor of the Kemerovo region where the mine is located, the resumption of operations at the mine will be carried out in stages, with the recommissioning of the first part of the mine to take at least four months, and over another four months required for the restart of the second part. Mr. Tuleyev also added that, according to preliminary estimations, the cost for repairing the mine's damaged infrastructure on the land surface is Ruble 700 million, while an estimated Ruble 5 billion will be needed to repair the damages inside the mine.
Considering that in 2009 Raspadskaya Coal Company's share in Russia's overall coal output amounted to 18 percent, with 10 percent from the Raspadskaya mine, analysts agree that following the accident the stoppage of mining at Raspadskaya mine is likely to cause a shortage of coking coal in the Russian domestic market (sales to which amounted in 2009 to more than 70 percent of the company's total sales), and a rise in the spot price for this raw material, as the traditional peak season for consumption in the domestic steel industry occurs in the second and third quarters.
Among the main consumers of Raspadskaya's coal are the largest Russian steel producers Evraz Group, which owns a 40 percent stake in the company, NLMK (Novolipetsk Steel) and MMK (Magnitogorsk Iron and Steel Works). Meanwhile, Ukraine's ArcelorMittal Kriviy Rih and South Korea's POSCO are major buyers of Raspadskaya's export volumes.
Evraz Group was buying about 13 percent of the coking coal it needs from Raspadskaya, mainly for its subsidiary Nizhny Tagil Iron and Steel Works (NTMK), Interfax news agency reported. Currently, the plant has sufficient coal reserves for about two weeks. During this period, Evraz plans to start supplying NTMK with coal from the Kuznetsk and Abashevskaya coal mines of its subsidiary Yuzhkuzbassugol. Meanwhile, MMK said that shipments from Raspadskaya amounted to about 10 percent of its total needs, and the situation will not affect the company's operations, as the raw material will be secured from its mining company Belon. NLMK was purchasing about 10-12 percent of its total consumption volume from Raspadskaya. Currently, NLMK has enough coal reserves for about one month, and will look for alternative supplies of coal concentrate from other Russian producers.
Speaking of the impact on other coal players, analysts from Troika Dialog note that Mechel, another leading Russian mining company, is unlikely to gain a lot in terms of additional demand, as it mainly produces low-volatile blends that cannot be used as a substitute for coal supplied by Raspadskaya. Meanwhile, analysts consider that, in the event of a shortage of high-volatile coking coal, an increase in demand and prices is likely for Belon's coking coal. The price of Russian origin coking coal in the domestic market could increase from $140/mt to $160-180/mt FCA.
If the mine remains out of service for the rest of this year and Raspadskaya does not increase production at other sites, the company's 2010 revenue could fall by more than 40 percent, to $550-600 million, said Boris Krasnozhenov, a mining and metals analyst for brokerage firm Renaissance Capital.
Even if the Raspadskaya mine quickly restarts production (i.e., within one or two months), Russia's planned coking coal output for 2010 could decrease by between three and five percent.