What will end the coal war of Andrei Melnichenko and Igor Zyuzin

As SUEK Andrei Melnichenko and Mechel Igor Zyuzin share the premium coal market in South-East Asia.
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The recently published financial report of the leading Russian coal corporation SUEK pleases its owner Andrei Melnichenko with big profits. But a significant part of them is due to the supply of premium coal for export - this coal is reloaded in ports. And this overload, like mining in the mines, very soon may be under attack.

Profit center

Siberian Coal Energy Company (SUEK), Andrey Melnichenko, reported on the profit in the last year. Net profit of the company was $ 657 million, compared with 2016 ($ 314 million), this figure has more than doubled. Analysis of the financial statements of SUEK shows that the center for the formation of its profit is in the PRC. It was the Chinese authorities in 2016 that managed to stabilize the world coal market after a year earlier prices fell on him twice - from 110 to 55 dollars per ton.

The return of prices to the previous levels was largely ensured by the administrative intervention of the Chinese government, which carried out a number of organizational measures aimed at "settling the domestic coal market." As a result, world prices for products returned to three-digit levels. According to SUEK, the average price for forwards for the sale of coal is $ 85 per ton, while at the end of 2016 it is just over $ 60.

There is nothing surprising in that the Far East direction has turned into the main front of expansion of the corporation's business. SUEK says it intends to increase its share in the premium markets of the Southeast (Japan, South Korea, Taiwan). For this, a huge bulk terminal in Vanino Bay is being built.

Dusty business

Once Vanino there was a point of loading of zeks and goods for Dalstroi-the Middle East head of the Gulag. But after the liquidation of a powerful institution, it turned into a quiet place. From the beginning of the XXI century, this silence was awakened by the roar of coal: Vanino turned into a large coal port, the dust from which repeatedly provoked a protest among the local residents. The escalation occurred in the summer of 2017, after a schoolboy Andrei Bolya from Nakhodka, who complained of an open coal transfer, was on a direct line with President Vladimir Putin. The president promised to understand, and the prosecutor's office and Rosprirodnadzor took note of this, and began checking the terminals.

The State Duma also promptly prepared amendments to the legislation prohibiting the open transshipment of coal at sea terminals within the boundaries of settlements. Under the impact were 23 coal terminals, where from the railway to the ships to half the volume of Russian coal production.
The port of Vanino is one of such objects. However, in the old port runs another company - Mechel, which also has a whole range of coal assets. The ban also threatens her, but Mechel has its own trump cards.

Zyuzin's Ultimatum

At the beginning of 2016 a new attack struck SUEK. This time it came from fellow competitors. The largest shareholder of Mechel, Igor Zyuzin, initiated the closure of all coal mines with underground mining - to avoid accidents. To the conclusion that there are no other radical methods to combat human casualties in underground work, the British authorities also came in the 1970s. After that, the British closed all the coal mines in the country, despite the enormous social and political costs. These costs could not be resolved by the Soviet government, despite the fact that in the mines of the Soviet Union, accidents occurred regularly.

The massive closure of the mines began in the 1990s, resulting in their number being reduced almost fivefold - from 239 in 1990 to 58 in 2017. But, according to Igor Zyuzin, the mines should not be at all. Many of those present at the meeting took this proposal as a joke. But the representatives of SUEK were not to jokes. Deputy General Director of the corporation Sergey Grigoryev even suggested that the words of Zyuzin were simply taken out of context, since coal mined underground is the most valuable grade of coking coal that is necessary for metallurgy.

Nevertheless, the context set by Igor Zyuzin is quite obvious and transparent. According to the owner of Mechel, the closure of coal mines will not lead to a shortage of coking coal for one simple reason - the necessary volumes will easily close the Elginsky coal deposit.

The Elginskoye field is Russia's largest coking coal deposit with reserves of 2.2 billion tons, and it belongs ... of course to Mechel of Igor Zyuzin. But this is not all behind the scenes. The field is located in the southeastern part of Yakutia, 300 km from the Baikal-Amur Mainline, and the main direction of its export is the same port of Vanino, to which the branch of the BAM leaves. Actually, the development of Elga for a long time was constrained by the lack of a transport connection for the export of coal. Thus, this coal proves to be a direct competitor of the product delivered to the same port from the "SUEK" mines.

Strategic dilemma

There is nothing surprising in the fact that the Elginsky deposit had a complicated history, the victim of which was the well-known banker Sergei Pugachev and his entire International Industrial Bank. No less difficult was the fate of the Mechel itself, which built a private railway for the export of its quarry coal, in order to be on the verge of bankruptcy due to a series of catastrophic stock market downturns and credit problems.

And nevertheless, something added to Igor Zyuzin's confidence in loud statements in early 2016. This "something", most likely, turned out to be a bargain. In June 2016, Mechel closed the deal to sell 49% of the Elgin project to Gazprombank. Affairs with extraction and deliveries of the Yakut coal have gone more cheerfully: for the first 6 months of 2016 extraction has grown on 8% in comparison with the similar period of 2015. And in 2017, Elgaugol's production was 12% higher than the result of 2016. In 2018, the company plans to increase production at the Elga to 5.3 million tons. This means that the threat of closure of the mine production of SUEK is quite real. Sooner or later, but another accident at the mine, alas, is inevitable ...

Thus, a difficult strategic dilemma arises - one company has relative port advantages, and the other - mining. Dust in exchange for victims in the mines. These are the realities of the domestic coal business and competition between SUEK and Mechel.