Price dumping war, started by Kompania Węglowa at the turn of winter and spring helped the largest EU hard coal producer to catch a breath for a moment and restore the cash liquidity. The enormous coal piles were reduced, at least on paper – consumers took as much as they could and their yards are full. There are still large quantities of coal on the piles located next to mines, but at least now they have a new owners. Restoring KW’s liquidity cost the mining sector lots of blood, sweat and tears, but can we expect prices to bounce by the end of 2015?

The whole prices dumping war started around January. Falling international indices, followed by strikes in Polish mines gave KW’s Management Board a signal that something must be done. To stabilize the situation, the company started offering its coal for 4.5-5 PLN/t, so far for the foreign consumers. When the offer bounced off the wall due to the lousy coal parameters, KW knew they have to barge more on the domestic market.

Strategy was simple: everything to everyone at any cost. Kompania Węglowa walked around their distributors and was reaching to every, small or medium consumers (but also to strategic consumers of LW Bogdanka like Energa or Enea, which infuriated LZW-based company). New attitude towards the market was a surprise to some, still accustomed to KW’s sales department arrogance. Change in the approach to the customers was followed with decreasing the level of prices. It seemed like KW decided to introduce the market with something that could be described only as a “Black Friday” on Polish steam coal consuming industry, with Friday considered as an indefinite period.

Although looking around for new clients among the medium size coal consumers was totally acceptable (JSW was reaching even to companies that use no more than 15,000 tonnes per year), the “price discount” was too much. Officially, everyone was complaining that KW is selling coal for 7 PLN/GJ, with costs of production at a level of 10-11 PLN/GJ (which was a violation of anti-dumping laws). Around March there were even rumors of KW decreasing the prices for domestic market to 4-4.5 PLN/GJ!

Kompania Węglowa stand still on their position, stating that actual costs of production was overestimated and now it is at a level of 7 PLN/GJ. Also, company pointed that their practice is not unusual for the international markets. Stumbled upon KW’s impassiveness, LW Bogdanka and Katowicki Holding Węglowy decided to address the higher authority, asking for intervention before the damage will be irreversible. But for the KHW’s and KW’s owner situation was very convenient; Ministry of Treasury decided not to intervene, since restoring cash liquidity in KW was the only thing that could keep labor unions calm. Repeat of the winter’s strikes was the last thing that MoT would desire in the sensitive period right before the presidential election in May.

KW’s new business plan towards export was a misfire. Prices of coal at a level of 5 PLN/GJ (half of its production cost) helped increase the import only by 0.4 million tonnes in the first two quarters of 2015 (comparing to Q1 and Q2 of 2014) and led to paradoxes of Czech companies buying Polish coal and then reselling it to Polish companies for 7.5 PLN/GJ (since officially the 7 PLN/GJ price was dedicated only for energy sector).

The whole situation was suppose to last no more than a quarter (according to KW’s statements). So far, it led to deteriorated financial condition of KHW and LWB (both had to cut costs and reduce employment) and forced small and mid-size traders to suspend their coal-related activities, since the “line of profitability”, traditionally laying somewhere in between Poznań, Łódź and Warsaw was moved to Gdańsk in the far north. The only questions now are how much longer the market will be flooded with KW’s cheap coal and in which direction would it head after parliamentary election in October?