“Our mid-term strategy involves production increase, automatization and sales in new markets”

“Russian Coal” Group CEO Bilan Uzhakhov: “Our mid-term strategy involves production increase, optimization and automatization, sales in new markets”
CEO of “Russian Coal” Group tells about global and Russian coal markets situation, trends and prospects; his attitude to possibilities of creation carbon-free zones and tasks and targets of the company in 2017.

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Is there a future for the Russian coal industry?

Author: Bilan Uzhakhov – Russian Coal Group Director General
It is an open secret that the global electric power industry of which the coal industry forms a part is experiencing a system-wide reduction in both volumes and prices of energy resources.

In Russia, the coal industry now employs around 151,000 citizens, and another 500,000 people work in related industries, and the consequences of that trend have to be thought about at both corporate and national levels.

It is not surprising at all because coal companies are major enterprises for 31 Russian industry-based towns that have the total population of 1.5 million people.

Russia ranks sixth in the world when it comes to the total coal output. The privatization of coal industry completed following the end of the Soviet era resulted in coal being mainly mined in Russia by privately owned joint stock companies.

In Q1 2016, coal in Russia was mined by 169 companies, 107 of which dealt with open-pit mining and 62 took coal in mines. The industrial reserves of operating Russian companies that mine power station coal stand at about 15 billion tons. Nowadays it is only Russian Coal Group that has the reserves of 1.2 billion tons of thermal coal.

In Q1 of this year, the total output made 96 million tons, which is 6% more than in the similar period of last year. It is thermal coal that occupies a substantial share in the total output. Coal deliveries increased by 4% compared to the similar period of last year.

On the face of it, the state of the Russian coal mining industry does not seem to be beyond hope. However with that said the Russian coal industry has to face lots of problems and risks both in the domestic market and those pertaining to export.

Domestic consumption: gas and Kazakh import as major threats

The ‘low water’ in the hydrosystems of Siberia and the Far East contributed to success within the Russian national coal industry in 2015, with the load transferred from hydropower plants to steam plants, including coal-steam plants. But it is hardly probable that we will have much luck this year.

Picture 1. Coal output in Russia

The programmes of gasification are being fullfilled in Siberia according to plans. Low prices of natural gas will facilitate the development of those programmes.

Import of cheap coal from Kazakhstan poses another problem for coalers. Thus in Q1 2016, as many as 5.3 million tons of power station coal was brought from that country, which is 10% of the total domestic Russian consumption. However, extremely low global prices still make the domestic market attractive in terms of the selling of thermal coal. The competition will get even stronger there.

Russian Railways’s rates now pose a significant problem for the domestic market. The result is that logistical costs are often used to cover all potential profits, and the conveying of coal to some potential clients makes no business sense. In fact, it is railway rates that are of crucial importance in today’s domestic sales market of Russian coal.

Export: devaluation is just respite but not a panacea

Coal ranks fifth in the list of basic export products in Russia. There was a continuous growth of Russian coal exports beginning from the post-Soviet times when there was an upward trend in global prices of coal. In terms of coal exports, Russia ranks third in the world after Indonesia and Australia. In Q1 2016, of all the volume of exports, 37.5 million tons was exported, which is 5% above the level of the relevant period of 2015. With that said the share of exports in the volume of Russian coal deliveries in Q1 2016 stood at 44.3%. In 2015, the coal export proceeds made USD 9.5 billion, and in Q1 2016 they made USD 1.9 billion.

90% of exports accrue to thermal coal. Today, Russian coal is exported to 50 countries, including Japan, Cyprus, the UK, China, the Republic of Korea, Finland, Poland, and the Baltics. The main focus of attention was an upward trend in deliveries of coal through eastern ports in Q1 2016 (+18% compared to the same period of last year).
Picture 2. Q1 2016 Output Structure
In 2015, Poland, South Korea, Japan, China, Bulgaria and the Baltics became the main export areas for Russian Coal Group. Our export can be divided into Europe (51% of exports) and the Asia Pacific Region (49%). We carry out deliveries to China (that is among our top priority export areas) through traders and through overland borders directly. Poland is treated by Russian Coal Group as another top priority foreign sales market where we can witness a reduction in the output by local enterprises due to loss-making production companies, and our products are highly competitive.

Last year’s weakening of the rouble revived the Russian coal export and served as a commercial driver for business. The devaluation of the rouble gave support to export and gave Russian coal the edge in the world market. But it should be mentioned that such trend cannot last for long. No devaluation has ever resulted in any long-term positive effect.

Investment as a source of survival but not development

A decrease in the volume of investment (that is not expected to exceed RUB 52 billion) has posed a threat to the Russian coal industry. Considering the current rate of exchange, it is less than USD 1 billion. For comparison: in 2013, investment in Russian coal industry made about USD 2 billion. The effects of the decrease in investments will have to be felt not only in 2016 but also throughout the years 2017-2018 since the coal industry is rather passive in itself. The inertia principle is now applicable to the investment reserve created in 2013-2014.

Now it is clear that the investment generation by Russian coal companies will tend to the minimum survival estimate. I suppose that further decrease in the volume of investment is out of the question because such decrease will surely endanger the existence of the industry. Absence of investment in production will result in an increase of production costs. The profitability reported by coal producers is weak as it is, and its figures can be even worse if no investment is made.

In 2015, investments by Russian Coal Group made about RUB 1.5 billion. Considering that our company occupies around 8% of the Russian market of thermal coal, it is quite good. In 2016, depending on the market conditions, we plan to invest another RUB 1.5 billion. Such volume of investment allows maintaining the existing company’s facilities that include 7 coal mines in the Amur region, the Republic of Khakassia and the Krasnoyarsk Territory where over 4,000 working people are employed.

Efficiency and cost effectiveness to be on the list of top priority tasks

Expenses incurred by Russian coal producers are ever increasing. Taking into account the devaluation, companies will have to pay a much higher price to upgrade the equipment, 60% of which comprises the imported equipment.

At such hard times the current market conditions must contribute to improving performance and efficiency of manufacturing processes at Russian coal companies. Most efficient production management has become the formula for survival for Russian coal companies. However, management must not dwell on only traditional manufacturing processes. We should adopt and adapt the best management practices used by companies that operate in highly competitive industries. Flexibility, a rational approach to the solution to problems and enhanced responsibility for the efficiency of the capital used are still on the list of management priority tasks.

The companies that are afraid of getting rid of non-performing assets with high costs of production and that refrain from making solid investments in the modernization of production are doomed to closure.

5 of Russia’s largest companies that mine thermal coal

Picture 3. 5 Russia’s largest companies mining thermal coal
Continuous optimization of costs is also of crucial importance. Today’s market conditions make coalers go on an economy drive, which is unusual for many Russian companies.

Today, most of the Russian coal producers are losing money. Over the past few years, the companies’ expenses have increased dramatically, with export prices now recorded at the same level as in the years 2003-2004.

Should the dollar exchange rate be less than the current exchange rate, all the positive effect benefited from the devaluation will be lost. It will adversely affect the business efficiency of Russian coal producers. It is clear that it will result in many Russian coal mining companies being on the brink of bankruptcy. It is management expertise and skills that will show whether or not bankruptcy can be avoided.

24.07.2016. Mining.com

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Russian Coal Group reports production results for 1H16

Russian Coal Group has produced more than 6.2 million t of coal during the January to June 2016 period. Sales volumes for 1H16 are 5.7 million t of coal.

From the beginning of 2016 coal miners got new hydraulic excavators Hitachi, dump trucks Belaz, buses, graders and drilling equipment. This helped to make production more efficient and to put into operation new coal layouts.

“Since the beginning of 2016 there has been some recovery on the global coal market. The prices have increased by 1.5 – 2$. But if the dollar falls below the current rate, all the positive effects that was obtained at export sales from devaluation, will be lost”, comments Director General of Russian Coal Group Bilan Uzhakhov.

In 2016 depending on the market situation Russian Coal Group plans to invest in production RUB 1.5 billion. The same investments have been made in 2015.

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Sayano-Partizanskiy coal mine increases production

Sayano-Partizanskiy coal mine which is the part of Russian Coal Group increased production from 500 thousand t to 700 thousand t of coal. This mine is the only in Krasnoyarsk territory where high-quality and high-caloric coal (about 6500 kcal) is produced. Specifications of this coal make it suitable for all international standards of power sector as well as of housing and utilities. 70% of its production is exported to Europe and Asia-Pacific countries.

In 2015 600 thousand t of coal was mined at Sayano-Partizanskiy and in 2016 production volume will reach 700 thousand t. Russian Coal Group plans to increase production capacity of the mine to 3 million t of coal per year. To reach this target new coal layouts are explored and developed and the project of coal refining plant is created.

Now more than 220 people work at Sayano-Partizanskiy coal mine. Car park of the mine consists of tippers belaz, komatsu and Volvo. Mining equipment includes hydraulic and electric excavators, bulldozers and wheel loaders.

This year Sayano-Partizanskiy coal mine will get more new mining equipment including excavators, loaders and sorting complexes.

In 2015 all Russian Coal Group coal mines in Krasnoyarsk territory produced 5.9 million t of coal which is 15% more than in 2014.

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Russian Coal Group expands production in Krasnoyarsk region

In the first half of 2016 coal mines, belonging to Russian Coal Group, in Krasnoyarsk region produced 2.6 million tons of coal. By the end of 2016 Abanskiy, Pereyaslovskiy and Sayano-Partizanskiy coal mines will produce 5.3 million tons.

At the end of 2015 Russian Coal Group completed consolidation with KrasnoyarskCoal company. Thereby production assets of Russian Coal Group are situated now in 3 Russian regions – Amur region, Republic of Khakassia and Krasnoyarsk region.

Coal from Krasnoyarsk mines is delivered to municipal utilities and power generating companies as well as exported to Asia-Pacific countries. Total coal reserves of Krasnoyarsk mines are more than 587 million tons. In prospect Russian Coal Group plans to increase production capacity of Abanskiy, Pereyaslovskiy and Sayano-Partizanskiy coal mines to 10.3 million tons per year.

More than 900 miners are working for Russian Coal Group in Krasnoyarsk region. Company implements numerous social and charitable projects, helping low-income residents, retirees, WWII veterans and developing sports and leisure activities.

“Now global coal industry faces noticeable production crisis. But our positions remain strong because of wide range of products and balanced commercial strategy. I am sure that our leadership in the region will strengthen”, regional Director of Russian Coal Group in Krasnoyarsk Andrew Vaulin comments.

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Amur region develops coal production

In the first half of 2016 coal miners of Amur region produced more than 1,5 million tons of coal. The main consumers of brown steam coal from Erkovetsky and Severo-Vostochniy coal mines are CHPs and power generating companies of the region.

Production volume of Erkovetsky and Severo-Vostochniy coal mines is now 100 thousand tons more than the same period last year. The productivity was increased because of the update of mining equipment. Coal mines received new self-propelled drilling rig and buses.

Amur region was the first place in Soviet Union where open-pit mining started in 1932. Now much attention is paid to reclamation of cultivated land.

Besides Erkovetsky and Severo-Vostochniy coal mines the assets of Russian Coal Group in Amur region include mechanical repair plant, training and educational center and motor depot. Coal reserves of the mines are 572 million tons. More than 1700 miners are working in Amur region.

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JSC “Russian Coal” increased coal reserves in Krasnoyarsk region

JSC “Russian Coal” received the right to work at “Northeastern” coal area of Pereyaslovskoe coalfield. The period of license is 25 years. Thereby JSC “Russian Coal” has increased its reserves by 78 million tons. Now total coal reserves of the company are 1.324 billion tons.

In 2-2.5 years mining at the new area will begin. The development system there will be the same but with a new technical project which is aimed to maintain and, if necessary, to increase the production capacity of the company with minimal costs.

Pereyaslovskiy coal mine began its work in 1983. It is one of the biggest mines of brown coal in Krasnoyarsk region. Production capacity of the mine is 7 million tons of coal a year. More than 720 people work at the mine.

In 2015 mining transportation equipment of Pereyaslovskiy was updated. New bulldozers were bought. This year a new garage for the repair of bulldozers was also built and new railway scales were installed. In 2016 it is planned to continue updating transportation equipment of the mine.

Current coal reserves let JSC “Russian Coal” work for 100 years with the existing production capacities. Company plans to continue increasing production volumes and growing its reserves of coal.

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Coal mine “Stepnoy” produced 50 millionth ton of coal

November 16, 2015 coal mine “Stepnoy” which is part of JSC “Russian Coal” produced 50 millionth ton of coal. Coal mine “Stepnoy” is situated in Khakassia region. Is started to operate in 1993 and produces D-rank coal which is in high demand both in Russia and abroad.

From the beginning of 2015 “Stepnoy” produced 3.3 million tons of coal. Production capacity of the mine is 5 million tons per year. In 2014 “Stepnoy” produced 4 million tons of coal and in the short term the increase of production to 5 million tons is planned.

All produced on the mine coal is planned to process at the coal refining plant of “Stepnoy”. From the beginning of 2015 the plant produced 2.8 million tons of coal. In 2016 production capacity of the plant will be increased to 4.2 million tons.

At “Stepnoy” combined development system is applied. In mining operations 15 dragline excavators including hydraulic excavators HITACHI, 35 dump trucks BelAZ and 12 bulldozers are used. In 2015 technological transport system of “Stepnoy” was updated. 3 new dump trucks and a bulldozer were bought. In 2016 it is planned to buy new hydraulic excavators and dump trucks for the mine.

Production of “Stepnoy” is used by municipal utilities and power generating companies as well as exported to Poland, Baltic States, Turkey and China. In 2016 after the modernization of refining plant JSC “Russian coal” plans to increase the share of exported coal to 60%. In 2015 the share of export from coal mine “Stepnoy” will be 40%.

General Manager of coal mine “Stepnoy” Nikolai Zibarev congratulated the staff with the production of the 50 millionth ton of coal. “I am proud to be in the team of high professionals and sure enough that in future we will have new mining records”, he said.

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In 2040 APR countries will take 4/5 of the world coal consumption

Analysts forecast that in 2030 energy consumption of ten largest countries of APR (China, India, Japan, Republic of Korea, Indonesia, Thailand, Vietnam, Malaysia, Myanmar and Bangladesh) will grow by 33%. The main source of energy in this region is coal. In 2015 China is going to build 155 coal-fired power plants. Their total capacity will reach 123 gigawatts. In 2040 APR countries will take 4/5 of the world coal consumption. Now coal forms 48% of energy balance in this region. For comparison, the global market share of coal is 29%.

While world coal prices remain low Russian export supplies of coal continue to grow because of devaluation. Weakening of the ruble led to the increase of Russian coal exports’ competitiveness in contrast with Australian and North American supplies. In October 2015 Russian Railways delivered 29.3 million tons of stone thermal coal which is 3.2% more than in October 2014.

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Russian coal market strengthens its position

From the beginning of 2015 Russia produced 302 million tons of coal which is 5% more than during the same period of 2014. Exports grew 1.2% to 116.9 million tons.

Ministry of Economic Development plans that overall 365 million tons of coal will be produced in Russia in 2015 and in 2018 the production will increase to 370 million tons. Domestic coal consumption is estimated to be 202 million tons (103.5% comparable with 2014). Shipments for power stations will continue to grow.

Russian Railways stated that from the beginning of this year they transported 234.2 million tons of coal which is 2% more than in 2014. Export shipments increased by 2.8% in comparison with 2014. Leading destinations in terms of export growth are South Korea (3.5 times more), China (+37%), Europe (+20%), Turkey (+11%) and India.

Moody’s forecasts the rise of coal prices on world markets from the second half of 2016. But due to dollar and euro exchange rates favorable conditions for the growth of export are in Russia even now. World demand for coal will annually increase by 2.1%.

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