Since 2008 imported coal is a vital element of Polish market, which for some key participants is a thorn in the side. The issue of import prices competing with Polish producers was hysterically highlighted in 2013, when Kompania Węglowa was introducing their new strategy of sales on the domestic market (which was suppose to eliminate mainly Russian coal from the domestic market).
Image bellow shows how Poland was divided by KW’s sales department according to their innovative plan.
The idea was to divide Poland to 4 areas with different price levels, where prices would vary depending on few factors, among which the most significant ones were European coal indices (FOB Baltic and CIF ARA), sea freight and reloading costs and exchange rates (mainly USD to PLN). The last factor is also very important, especially among the mid-size international traders, who rely their business on deliveries from ARA ports.
The plan was never brought to life, but even without it there is no doubt that Polish prices are in very strong correlation with the international coal price markers. Figure bellow shows the changes in DES ARA and PSCMI1 and PSCMI2 over recent years (before the crisis and spread of 2016), meanwhile next one presents the correlation between these markers (using gretl econometrics software).
Correlation of 0.60 is already considered by econometrics experts as statistically significant. The result achieved here (0.93 and 0.92) without a doubt shows how strong is the connection between Polish coal and the one traded on the international markets. Just a year ago some experts believed that the correlation of these prices will be even higher, because of the increasing import to Poland. And although the volume of imported steam coal actually dropped by 50%, it is still likely that the prices of Polish coal and prices of ARA indices will maintain in a strong relation.