The anthracite coal market, could Ukraine unrest disturb exports & pricing?
The current crisis underway in Ukraine and in particular the Crimea peninsula
could serve to have some impact on the anthracite export and price markets particularly related to Ukraine bulk anthracite seaport exports. Ukraine typically exports between 4 to 5 million metric tons of anthracite each year, primarily to Turkey, Bulgaria, Poland, Spain, Italy and Belgium. Naturally, the biggest regional export competitor is Russia. Anthracite accounts for about 30% of Ukraine’s coal production
The pricing of Ukraine anthracite has essentially been controlled by the Ukraine State, given that the majority of coal mined in Ukraine is sold for domestic use, the Ukraine government does not want to purchase high cost coal. Essentially this pricing situation has made Ukraine anthracite competitive and attractive for customers in Asia and Western Europe, but how long can Ukraine’s export market for anthracite continue either un interrupted or indeed un affected by events in Ukraine?
Most of Ukraine’s coal is produced from the Donbas basin, in Eastern Ukraine and when exported by sea often goes through the Berdyansk commercial seaport and or the Mariupol commercial seaport, both located on the Sea of Azov.
So far Russia has focused its attention on securing the Crimea peninsula and is currently in control of the Port of Sevastopol, home of its Black Sea military naval fleet.
The most important seaport and main commercial export port in Ukraine, is the Port of Odessa, which is still under control of the State of Ukraine and not hindered by Russian military activity.
Should the situation in Ukraine worsen and Russian influence in terms of military presence spread to include a partition of Ukraine, where the east of Ukraine becomes under Russian control, then Ukraine would lose its most important energy asset, that of its coal fields. This is why the crisis in Ukraine is a serious one. Should Russian influence spread to east Ukraine, the whole of Ukraine from an energy security perspective would be affected.
There are two private coal miners of significance currently operating and exporting coal from Ukraine, they are;
DTEK, Ukraine’s largest privately integrated energy-company, involved in power generation and coal mining.
Sadovaya Group a pure play coal mining operation, with its head office in Alchevsk, Ukraine, but also with a domiciled address in Luxembourg. Sadovaya has its shares traded on the Warsaw Stock Exchange, ticker (SGR:WSE)
The company has seen its shares decline by 63% over the last 52 weeks.
The potential for supply disruption of Ukraine’s anthracite coal bound for export markets is clearly there and may well drive some of the Asian and European importers to look further afield for anthracite supply. Indeed, any export restrictions would only serve to increase the price of anthracite on world markets, as would demand by Ukraine domestic thermal power producers.
TSX and AIM listed East Coal (AIM: ECX) ceased trading on the 26th February 2014, after acquiring theVerticalnaya anthracite mine and Menzhinsky mine in Ukraine, eventually disposing of these assets after filing for bankruptcy in November 2013.
Clearly the opportunity for Ukraine to attract foreign direct investment into its coal sector, certainly from Western investors, remains challenging, given the difficulties East Coal faced in what was a pre-Russian interventionist environment.
For investors looking to get a position in the anthracite market, opportunities to invest in listed production and earnings play anthracite securities are slim.
South African listed securities, Petmin (PET:JNB) would give investors exposure to the anthracite market in South Africa, but also increasing the risks that the South African mining sector is facing in general with its current workforce unrest. Petmin cancelled a planned listing of their shares on London’s AIM market back in October 2013.
Closer to home, AIM listed Atlantic Coal (ATC:AIM) is one of few anthracite focussed mining companies that is currently listed, is operationally profitable and with its main Stockton mine located in the anthracite coal fields of Pennsylvania USA, faces none of the geopolitical risks associated with other investment targets. Indeed, Atlantic’s Stockton mine does have the rail and port infrastructure to export, should it be able to increase its mining output through its stated plans to acquire other anthracite assets in Pennsylvania.
Investment Summary:
Listed on AIM, Atlantic Coal (ATC:AIM) is probably the best listed anthracite mining play with which UK investors can get access to at a time when the anthracite market is facing potential supply and pricing volatility.
ATC shares have rallied in recent days by 5%, partly due to a recent announcement of a major equipment purchase. Over a 5 year period, the stock is down 70%, over the last 12 month the stock is down 26% but in the last 6 months the stock has rose by 39%.
Further information on the company can be found at
