Sector Outlook

Coal still accounts for 90% of Poland's energy, in stark contrast to the rest of Europe. 

The price upswing of 2016-2017 means that the sector's firms have vastly improved their financial standing and are better equipped to finance the investments that are needed in new coal fields (e.g. Poland's main lignite field in Belchatow is expected to be depleted in 2032-2036). Poland's economic development means more electricity will be needed. This applies also to the electrical vehicles segment, as the government plans to have 1mn such vehicles in operation in 2025. These intentions mean that coal, the main fuel for power plants in the country, will remain in demand. Another opportunity lies in the ambitious plans involving coal gasification technologies. However, these are in their early stages: for instance, Grupa Azoty and Tauron Polska Energia have signed a letter of intent on such a project, envisaging a EUR 400mn-600mn coal gasification facility starting operation at Azoty's Kedzierzyn-Kozle plant in 2021-2022.



Note: Data for 2016

Source: Statistics Office, Central Bank, Company Data


Sector Forecast

The industrial production value of coal mining is expected to grow by 3.7% between 2016 and 2021. The sold production will increase by 17% during that period, supported by shrinking inventory.

Depleting resources and rising production costs could send hard coal production down to around 55mn tonnes in 2021 - down by 20% compared to 70.7mn tonnes in 2016, according to EMIS Insights forecasts. The drop will come as a result of the 2016-2017 restructuring process, which saw a couple of mines closed. Investments in new deposits are in the pipeline, but their effects are not likely to be felt any time soon.

As domestic production of hard coal falls, the demand for coal will have to be met by increased imports. In the last decade Poland has become a net hard coal importer. The expected drop in hard coal prices, caused by the growing output in the US, China and Russia, will further strengthen imports and harm Polish exports due to the high costs of coal production in Poland. Hard coal exports are expected to significantly decrease due to falling demand on the EU markets, which are moving away from coal-powered generation, and due to the high prices of Polish coal.



Source: EMIS Insights                                                                                               

*includes both Hard Coal and Lignite figures combined       


Power Generation

The structure of electricity generation has not changed significantly in the last few years. Hard coal and lignite were the dominant sources of electricity production. BMI Research estimates that, in 2017, their share in generation amounts to around 80.7% (compared with nearly 84% in 2015 and nearly 86% in 2014).

In 2015, national gross electricity consumption rose by almost 2% y/y to 164.63 TWh, following annual growths of 1.7% in 2015 and 05% in 2014. The 2016 increase was due, above all, to healthy economic growth, as GDP rose by 2.7% in 2016 after an increase of 3.8% in 2015. The volume of national gross electricity production climbed by 0.5% on the year to 162.63 TWh, vs. a growth of 3.3% y/y in 2015.

In 2016, electricity exports fell by 5% on the year to 2.49 TWh. Imports surged by 48% y/y to 5.31 TWh due to the lower prices of imported power (because of this, analysts expect Poland to continue to be a net importer of Energy). Most of the imports came from Sweden, Lithuania, Ukraine and the Czech Republic.


Source: Statistics Office


Source: Statistics Office


Prices: Domestic Trends

The average coal sale price in Poland in 2016 was PLN 246.7 per tonne, with thermal coal averaging PLN 215.35 and coking coal PLN 385.75. In H1 2017, the average price rose significantly to PLN 317.09 per tonne (up to over 38% y/y). The thermal coal sale price averaged PLN 231.93 during this half-year and that of coking coal PLN 692.38.

BDM notes that, after several years, Polish coal producers have returned to offering lower prices than their foreign competitors. Its analysts think that continuous price upsides in ARA ports and unusually low coal stocks in Poland give reason to expect that coal prices in the country will remain on an upward path at least until Q1 2018. BDM expects the Polish market price of coal for electricity (reflected in the PSCM|1 index) to exceed the PLN 230 per tonne mark at the turn of 2017 - compared with slightly over PLN 208 per tonne in mid-2016). In Q1 2018, it should reach at least PLN 235-240 per tonne.



Source: Arp, LW Bogdanka