Tension mounts over hard coal prices and future of Czech mines

Photo: OKD

World coal prices are depressed and that could push the fate of the remaining handful of Czech mines producing hard coal to the top of the political agenda again. A lot will depend on price developments in the next weeks.

Photo: OKD
Minister for Industry and Trade Jan Mládek is probably keeping a close eye on world coal prices at the moment.

Not for any personal interest or his winter heating needs, rather the fact that the thorny problem of one of the last still operating deep Czech mines and the around 1800 miners and staff still working there could return with a vengeance to the top of the political agenda.

The fate of the loss making Dole Paskov, operated by the OKD mining company which is in turn part of the stock exchange listed New World Resources (NWR) group, was temporarily assured under a deal between the government and NWR around a year ago.

The broad outline of the agreement was that OKD would continue to operate the mine and keep the workforce on at around current levels until the end of 2017. The government promised 600 million crowns at the end of that to deal with some of the social results of the mine’s final closure.

But in the detail of the deal there was a sort of escape clause for OKD. Basically, this said that if the world price of coal fell below 110 US dollars a tonne for three quarters in a row then the agreed deal was no longer valid and the mine could be closed. Of course, a new deal with the government could be done but all options were once again open.

For the last two quarters the world price of coal has slumped below the agreed benchmark and the third quarter figure is now awaited anxiously. On the supply side, the problems that have eroded the price for hard coal are ongoing: the US shale gas revolution has caused a lot of US industry to shift to the cheap energy source. That means a lot of cheaply mined open cast US coal looking for a new home and pushing prices down. On the demand side, China, the number one world steelmaker and imported of hard coal, has appeared to be slowing down in recent months and that has contributed to a weakening price.

A rebound, though, could still be possible. International commodity newswire Platts reported at the start of the month resistance to further price falls but at the same time it warned as well that buyers were not hurrying to corner stocks because they hoped further price falls might be possible.

Meanwhile, Mr. Mládek is closely following the Polish government’s moves to deal with the same problem, but on a much bigger scale. Warsaw is promising to help its loss making coal mines but it is not yet totally clear if that help counts as illegal state aid or cash for restructuring. The European Commission is likely to block or pare back the first option but could be expected to clear the second, as long as it’s accompanied by a long term viable plan for the sector.