The situation in the domestic coke markets in Russia and Ukraine is close to critical with prices soaring to record levels due to tight availability of coking coal supplies.
The current price for coke in Russia is nearly Ruble 5,000/mt ($195/mt) excluding VAT, showing an increase of almost Ruble 1,000/mt ($39/mt) in the last month. However, even this high price cannot guarantee stable deliveries at the moment. One trader reports that coking coal producers have introduced an order prepayment system for deliveries, but even 100 percent prepayment cannot always guarantee timely supplies.
The main reason for such a dramatic price increase is the scarcity of coking coal in the domestic market. The shortages are due to the seasonal low availability of railway cars, and also to the temporary shutdown of two of Evraz's coking coal mines, Yulyanovskaya and Yubileynaya, which produce around 2.1 million metric tons and 1.3 million metric tons per annum respectively - due to accidents that occurred at the end of spring.
Although coking coal reserves were able to keep the coke market relatively stable at the beginning of summer, by August the market situation started to get out control. Meanwhile, due to the decision to put these two mines back into operation only by the end of September, market analysts are very skeptical in their forecasts for September. For that reason, several coke producers have reportedly proceeded to conclude separate delivery contracts for coking coal from Australia.
Since coke is one of the essential elements in steelmaking, this confusion in the coking coal market has significantly affected the domestic steel mills. On the one hand, the large amounts of imports do not allow the domestic steel producers to hike their prices so as to compensate for the rising production costs. On the other hand, the steel producers cannot afford to work at a loss for a long period of time, and even given the current state of the market demand for steel products, rising prices for coke will force the steel producers to increase their prices. So far, the steel mills that do not have their own coking coal reserves are experiencing the most difficulties. MMK is among these mills - supplies from the damaged coal mines met eight percent of the plant's needs in coal.
The resulting scarcity of coking coal in the Russian market has also affected the Ukrainian domestic market in a negative way, given the fact that Russia is the main supplier of coking coal to Ukraine. Market players report that supplies of coking coal from Russia to Ukraine, which were reduced in August in favor of Russian domestic market deliveries, will drop even further in September.
Several steel mills, including the country's largest steel mill Arcelor Mittal Krivoy Rih, are considering the possibility of importing from the USA and Australia.
As for the price of coke, the domestic price has increased by more than UAH 100/mt ($20/mt) over the past month, reaching a level of around UAH 1,100/mt ($220/mt). Meanwhile, market analysts do not exclude the possibility of a further increase of UAH 300/mt ($60/mt) in the upcoming months if the shortages continue.