Dmitry Bosov figured out how to make money on coal dust

VostokUgol Dmitry Bosov announced plans to create a hub in the Krasnodar Territory for the supply of coal dust from Russia, which is used in the production of steel. South Russia will be replenished with another giant terminal polluting the environment.
Origin source
The company VostokUgol on Friday announced the formation of an alliance with OTEKO Michel Litvak, which in 2018 plans to put into operation in the Krasnodar Territory Taman terminal for the transshipment of coal, iron ore, sulfur and mineral fertilizers with a total design capacity of 35 million tons per year.

The companies agreed on the creation of a "global hub" in this terminal for deliveries abroad of a mixture of coal of different brands for the coal-dust injection, which is used for the production of steel, according to the message of VostokUglya.

The mixture for pulverized coal injection (PCI) will be produced mainly from coal mined in Kemerovo on the Kiizassky (T-mark) section, with the addition of anthracite from the Vostochny section in the Novosibirsk region, both of which are included in VostokUgol. In 2018, the alliance plans to export 0.5 million tons of PCI per month (or 6 million tons per year), then supplies can be increased to 12-14 million tons per year. "Thus, the alliance will become the Russian leader in the supply of PCI," - said in a press release, "VostokUglya." The company intends to supply raw materials to India, China, Brazil and Europe, it already has contracts, a spokesman for VostokUgol said, refusing to specify details of the contracts.

"PCI is a partial replacement of expensive coking coal, which also reduces gas consumption in the production of steel in blast furnaces," explains Rosinformuglya CEO Anatoly Skryl. According to him, there is a significant demand for such products in the world. According to Platts, the price of a ton of coal dust per month, from the end of November to the end of December 2017, increased from $ 125 to 145. Now the largest in Russia, the exporter of PCI is Mechel Igor Zyuzin. In 2016, Mechel sent abroad 1.6 million tons of such products mainly through the port of Posiet located in the Primorsky Territory, a company representative told RBC.

"Export for PCI is undoubtedly more profitable than just T and anthracite coal, but VostokUgly's ambitious plans are questionable. If Mechel, with its expertise in coal, has not yet used this opportunity to earn, then probably there are significant infrastructural restrictions, "said Maxim Khudalov, director of corporate ratings at ACRA. According to his estimate, based on current prices for PCI and a discount from the world price of 10%, the EBITDA margin in such a business may be about 50%, with an ordinary margin of coal miners below 40%. But given the likely fall in coal prices in the medium term, the margin will drop to 25-30%, the expert adds.

The head of the analytical division of Alfa-Bank, Boris Krasnozhenov, estimated the volume of the world PCI market at 45-50 million tons, of which 6-7 million tons is produced by Russia. According to him, the main supplies now go through the Far Eastern ports. "PCI gives a significant economic effect only in countries where expensive natural gas, and this is just in South-East Asia," he says.

Skryl also noted that VostokUgly's plans could be hampered by the limited carrying capacity of the railways: "The pace of modernization and expansion of railways does not yet satisfy the needs of coal miners. All Russian coal companies against the backdrop of rising prices for this raw material in the world would be happy to sharply increase exports, if the railways allowed. "

A spokesman for RZD told RBC that the monopoly had given VostokUgly the technical conditions for securing 10 million tons of cargo each year from Kuzbass in various directions: not only to the ports of the Taman Peninsula, but also to the ports of the Far East and the Northwest. RZD is also preparing for an increase in traffic to the Azov-Black Sea ports and, in connection with this, is actively implementing projects to develop approaches to these ports, the representative of RZD added.

A spokesman for VostokUgly told RBC that there would be no problems with exporting: "logistics has been calculated, agreements have been reached with the port on transshipment of the declared volumes".

VostokUgol is not the first to surprise the market: in two years the company was able to increase coal production in the Kiizassky section by almost three times, to 10 million tons in 2017 (against 3.5 million tons in 2015). The company also announced its intention to produce in Taimyr up to 30 million tons per year of "Arctic carbon" (high-quality anthracite, widely used in energy, chemical industry, metallurgy). In this project, Bosov has already invested about $ 100 million, and the whole project is estimated at $ 250 million.