Providing high-quality customised products
Boosting operational efficiency and high-CV coal output
We are focusing on the production of high-CV low-emission coal, which is in high demand in the Asia-Pacific region (Japan, South Korea, and China). In 2020, hard coal output grew by 1% to 68 Mt, while the volume of coal washing increased by 7%, meeting our strategic goal of washing 100% coal for export. Khabarovsk operations, which are closest to Eastern ports, achieved a significant increase in production of 17% to 7 Mt. We extracted more coal in Buryatia, reaching our target of 15.5 Mt ahead of schedule, reflecting a 3 Mt growth in production from Nikolsky. The company also maintained high production rates in excess of 30 Mt in Kuzbass.
This is one of our priority areas. Our goals for 2021 are to reduce costs and increase production volumes through speeding up the work of sinking crews and relocation work, increasing the working face load during underground mining, and raising the efficiency of mining and transportation activities during open-pit mining.
To achieve this, we aim to:
- Improve the transparency and accuracy of the end-to-end planning and accounting system across the business, from production units to the parent organisation, including developing a combined work schedule for key production and supporting processes and automating the collection and analysis of data from mining equipment
- Boost the efficiency of dispatching offices; for example, optimising equipment during downtime and increasing the load and speed of dump trucks at open-pit mines
- Improve the efficiency of repair work
SUEK has been engaged in production automation for more than ten years, being one of the leaders in the Russian market. Our goal is to create a uniform information landscape that ensures effective management of production processes, decision-making based on real-time data, and strictest compliance with industrial and environmental safety requirements.
In 2020–2021, the focus of SUEK’s digitalisation is on:
- Enhancing industrial safety (personnel positioning and monitoring the health status of workers, forecasting and controlling gas pollution in underground mines, monitoring fire extinguishing systems in underground mines, preventing collisions and injuries by moving machinery at open-pit mines, and fatigue monitoring of dump truck drivers),
- Optimising production processes (projects such as ‘Overburden particle size control’, ‘Operational control systems for dump truck loading’, ‘Efficiency improvements for supervisory control at open-pit mines’)
- Robotising production processes (trialling the introduction of unmanned dump trucks and robotics-aided drilling rigs for open-pit mining)
International coal market
In 2020, both international coal suppliers and importers faced challenges due to anti-pandemic lockdown measures and decreased electricity consumption caused by lower output in the industrial sector. Overall coal market sales volumes decreased by 11% to 865 Mt.
Reduced electricity consumption due to COVID-19 lockdown measures and stricter environmental policies impacted Asian demand in 2020 (-9%, or -77 Mt, year-on-year), though between May and June many markets started to recover.
Japan, South Korea and Taiwan accounted for 30% of the total thermal coal imports, amounting to 258 Mt. In South Korea, COVID-19 restrictions combined with anti-pollution measures reduced coal demand. In Japan, a lower share of nuclear energy in the fuel mix and higher gas prices supported coal consumption during the fourth quarter, but the imports fell by 5% year-on-year. Taiwanese imports remained flat, as buyers sourced at bottom prices and only opted out in the fourth quarter when prices rallied.
China had problems in ramping up coal production to meet increased demand after the country’s quarantine measures eased. However, by the last quarter, China imposed import quotas to keep imports levels equal to those of 2017. On top of this China imposed a ban on Australian exports due to geopolitical reasons, while going through a strong economic activity and a cold snap that started to push domestic prices up significantly by the end of the year. Overall, the total imports volumes dropped 16% to 184 Mt year-on-year.
Indian imports were down 14% year-onyear due to high domestic coal inventory levels amidst lagging demand.
Vietnam has been ramping up import volumes as new coal-fired plants are being commissioned. Year-on-year volumes grew by 35%, as customers took the opportunity during the height of the lockdown to source at low prices and slowed down purchases during the rest of the year.
The Atlantic market experienced a decline of 33 Mt (–23%) year-on-year, as European demand remained weak. COVID-19 drastically reduced demand and inventories remained at high levels. Balances began improving by the year end as stocks decreased, and winter began driving up demand for heating, as well as a general lack of wind compared with previous years which reduced renewable energy generation – this all led to coal and gas prices increasing.
Turkey and Morocco continued to be the main positive demand drivers.
Currencies of most of the majority coal exporters (except Australia) devalued against the US dollar, resulting in dollar cost savings, still a sharp price reduction during the first half of the year obliged producers to reduce supply (though supply was also impacted by strikes and weather).
Indonesian exports trended downwards during most of the year due to lower demand and wet weather constraining availability, and though the last two months witnessed a boost due to Chinese demand, exports still dropped by 14% year-on-year.
Australian exports were severely impacted by the Chinese ban on Australian coal during the last part of the year, obliging them to find alternative buyers for their coal. Part of the country’s metallurgical coal was sold as crossover material in the thermal market.
South African exports ended flat year-on-year.
Colombian exports dropped by 32% due to a 90-day strike at Cerrejon and the shutdown of the Prodeco mine.
USA exports reduced by 27% year-on-year to 24 Mt, as low international prices did not allow sales of fresh tonnage during the year. The situation started to improve by the end of the year.
Russian coal market
The production and supply of Russian thermal coal decreased due to the warm winter and high hydroelectric output levels experienced in Russia in 2020, along with the reduction in fuel consumption in Europe due to the economic downturn caused by the pandemic and lockdown restrictions.
In 2020, Russian thermal coal production fell by 9% year-on-year to 313 MtSources: statistical data from Russian government agencies, SUEK estimates.. Hard thermal coal production decreased by 8%, accounting for 77% of the total production (240 Mt). A large share of the high-quality coal produced in Russia is supplied to the international market.
Brown coal production decreased by 11% compared to 2019, to 73.3 Mt. This type of coal is mainly supplied to the Russian market, to power plants and public utilities.
In 2020, thermal coal supply volumes to the domestic market dropped by 11% to 113.7 Mt. Power generating companies received 73 Mt of coal (46 Mt brown and 27 Mt hard coal). A 13% year-on-year decrease in demand for coal from generating companies was caused by lower electricity consumption in Russia amid the economic downturn, and record electricity generation at Siberian hydroelectric power plants because of high water flows. Coal supplies to utilities fell by 10%, to 19 Mt, due to the unusually warm winter of 2019–2020 which meant there was a shorter heating period.
Thermal coal imports shrank by 3%, to 22.2 Mt, due to lower demand from Russian thermal power plants and public utilities. Kazakhstan remained the largest supplier of thermal coal to Russia.
The Asian market remains the most important driver for the growth of Russian coal exports. Despite the quarantine restrictions, the region showed robust demand for solid fuel, and in 2020, total Russian thermal coal exports only decreased by 4% to 183 Mt. This can be attributed to Eastbound shipments to sea ports and cross-borders in the East of Russia rising by 5 Mt (totalling 96 Mt), which partially offset the 12 Mt drop in export shipments in the western direction, which totaled 87 MtIncluding PCI coal..
Russian exporters intensified seaborne shipments to China, Taiwan, Japan, Malaysia and Pakistan, though thermal coal deliveries to China through railway border crossings decreased by 2 Mt (to 8 Mt).
In 2020, most European countries cut thermal coal imports, including supplies from Russia. The only Atlantic markets where Russian exporters markedly increased their shipments in 2020 were Turkey and Morocco. Turkey, the Netherlands, Morocco, Germany and Italy were the main destinations for Russian seaborne thermal coal exports to the Atlantic market.
SUEK’s coal reserves total 7.5 Bt (No. 5 globally), a volume which will provide us with high-quality raw materials for over 30 years into the future.
Coal mined by SUEK has a low nitrogen and sulphur content. Its processing significantly reduces ash content and increases the calorific value and environmental friendliness of our products, which ensures they meet the requirements of the consumers with the highest standards, for example Japan, South Korea and Taiwan.
Our hard coal assets in Kuzbass, Khakassia and Buryatia are close to railways and able to dispatch products to ports in eastern and western Russia. This location makes it possible to adjust our supply schedule depending on demand and helps us maintain our position as the largest coal exporter from Russia. SUEK's hard coal assets in the Khabarovsk region are much closer to ports used for shipments to Asian markets than the facilities of our competitors. As for our brown coal assets in the Krasnoyarsk, Zabaikalye and Primorye regions, they are located in close proximity to energy companies which consume our low-ash coal, including those that we own.
SUEK also produces metallurgical coal at the Kirov WP. Our Chernogorsky WP produces sized coal, which is used in households in Poland, Turkey and other countries. Our smokeless briquettes are used in private households in Siberia.
Our largest service companies Sib-Damel, Borodinsky and Chernogorsky, are mechanical plants which offer a full range of services for the repair and production of mining equipment mechanisms, thereby reducing our dependence on third-party suppliers.
SUEK's owned logistics infrastructure (e.g. railcars and ports), delivers our products to consumers in a timely manner.
Thanks to SUEK's well-developed distribution network, we supply commodities to customers in 49 countries.
In Russia, the Group delivers coal to large energy and industrial companies as well as small and medium-sized consumers through its sales unit.
SUEK AG sells coal, petroleum coke and other products to international markets via a network of representative offices and subsidiaries in countries of strategic importance for the Group such as China, Taiwan, South Korea, Japan, Vietnam, Lithuania, Indonesia, Australia, the UK and the USA. This allows the Group to sell products in local currencies, provide additional services as needed and develop trading to maximise utilisation of sales and logistical infrastructure.
|By product type|
|By mining method|
|petroleum coke and other sales||1.3||1.4||(7%)|
|to SUEK-owned generating facilities||37.1||33.7||10%|
|to other consumers||21.8||26.2||(17%)|
Innovative Deep Coal Processing Technology
In June 2020, a flotation unit was put into operation at the Kirov WP in Kuzbass. The new flotation technology, the first of its kind at SUEK’s operations, maximises the washing efficiency of coal fines (0–0.35 mm), producing a high-quality concentrate (calorific values of over 6,000 kcal) with an ash content of only 8–9% from a product with an ash content of 30–40%. Previously, this technology had only been used for coking coal.
The new flotation unit will increase the annual output by 150,000 tonnes. The new unit layout makes it possible to process slimes coming from the plant and from the old slime tanks. This is more environmentally friendly, reduces waste and the need for waste transportation in cities (which results in dust, noise, and polluting emissions from vehicles).
The flotation unit was designed by SUEK’s own research and design institute Sibniiugleobogashchenie and the project investment now totals $13m.
In 2020, SUEK's sales totaled 114 Mt, down 1% year-on-year.
International sales remained flat year-on-year, amounting to 55.1 Mt (including 1.3 Mt of petroleum coke and other sales). A decline in shipments to the Atlantic region was offset by higher sales to countries in Asia. SUEK's main international customers in 2020 were Japan, China, South Korea, Taiwan, Vietnam, Germany, the Netherlands, Morocco, Poland and India.
SUEK's supplies to the Asia-Pacific region accounted for 67% of the company's international sales, representing a growth of 2.8 Mt, and coming to a total of 37.1 Mt. Growing exports to Japan, Taiwan and Vietnam contributed to this increase. Atlantic sales dropped by 2.9 Mt, to 18 Mt, due to a large decline in shipments to Germany, Finland, the Netherlands, Spain, Croatia and Slovenia.
Sized coal sales, including through our own distribution networks in Russia, Poland, the Baltic states and Turkey, decreased by 7%, to 3.7 Mt. This can be attributed to warmer weather conditions that reduced the coal usage in public utilities, the challenging economic situation in Turkey and restricted shipments to China through railway border crossings.
Metallurgical coal sales declined slightly to 2.8 Mt, mainly due to a surplus in the supply of high-volatile semi-coking coal in the Russian market.
Coal sales to the domestic market amounted to 58.9 Mt, a 2% decrease year-on-year. Deliveries to SGC's power plants rose by 10%, to 37.1 Mt, due to increased shipments to the recently acquired power plants' Reftinskaya GRES, Krasnoyarskaya GRES-2 and Primorskaya GRES. For the same reason, sales to other Russian consumers fell by 1% year-on-year to 21.8 Mt.
Sales of petcoke and other non-coal products in 2020 decreased slightly compared to the previous year, to 1.3 Mt.
Total revenue for SUEK’s Coal Segment shrank by 17% year-on-year to $4,817m driven by falling global prices. The 2% decrease in domestic revenue reflected lower sales volume and weaker rouble.
In US dollar terms, the unit cost of the Group's coal sold dropped by 13% compared to 2019, to $13 per tonne, due to the realisation of the anti-cisis programme, including suspension of production at our least efficient, higher cost assets, combined with a weaker rouble.
The Segment’s EBITDA totalled $675m, a 10% decrease year-on-year as higher-margin products and cost control partially compensated revenue decline.
In 2020, our assets produced 101.2 Mt of coal, representing a 5% year-on-year decrease. This is mainly due to lower extraction of brown coal by 6 Mt year-on-year, while the production of hard coal increased by 1 Mt.
The company also made progress on a number of investment projects to increase production capacity at key mines, including Nikolsky in Buryatia, Pravoberezhny and Severnaya in the Khabarovsk region.
Unmanned dump trucks
Since 2017, an innovative project has been underway in Khakassia, titled ‘Automated cargo transportation system based on unmanned BELAZ-7513R dump trucks’. The technology, also the first of its kind at SUEK operations, aims to improve the equipment efficiency and the safety of mining operations.
In 2020, the company adjusted the operation modes of the Group’s robot-aided system further following a number of tests. The updated operation modes facilitated the possibility of carrying out various rock transportation operations safely, resulting in the company approving a pilot operation to test the system.
Following these tests, results show that the productivity of unmanned dump trucks can be 20–25% higher compared with those under human control, while the consumption of diesel fuel is 13% lower. Following such encouraging results, in 2021, SUEK will consider the possibility of incorporating the system more broadly in the business, as well as expanding the Group’s fleet of unmanned dump trucks. Total investments for this project have already reached $3.4m.
In pursuit of our strategic target to increase the rate of production of high-quality coal and decrease our carbon footprint, the following projects were completed in 2020:
- Commissioning a flotation unit at the Kirov WP, which produced 148,000 t of flotation concentrate in 2020
- The Tugnuisky WP-2 reached its intended capacity of 6.2 Mt
- The reconstruction of the Chernogorsky WP, increasing its washing capacity from 6 Mt to 10 Mt a year
The share of washed coal of produced hard coal rose by 3 p.p. in 2020, with coal washing reaching 44.2 Mt — a growth of 7.2% year-on-year. Thus, we washed 100% coal for export.
In 2020, as a result of the COVID-19 pandemic and its negative consequences on global markets, we optimised our investment programme through the efficient movement of machinery between our plants, cancelling or postponing projects that have the longest time trajectory to reaching profitability or those that would not have a significantly positive material impact on our business. At the same time, we continued to invest in strategically important projects aimed at boosting sales of high-CV thermal coal and respective water treatment, land reclamation and health and safety measures.
Construction of the November 7th — New mineProject to replace an old mine that was closed.
Due to the deterioration in global market conditions, we slowed down the construction of the November 7th — New underground mine in Kuzbass, with the intention of restarting construction when the market has recovered. At the end of last year, when coal prices began to recover, we decided to commission the first longwall face at the new mine for construction to begin in the second quarter of 2021.
Developing assets in Buryatia
SUEK continues to expand the capacity of its Nikolsky open-pit mine in order to replace the Olon-Shibirskoe deposit which is being retired. To increase this capacity we purchase additional dump trucks for coal transportation to the washing plant. The company made a number of decisions to relocate equipment in order to expand the mining capacity beyond its current 15.5 Mt a year. In 2020, the new fine-size coal washing plant successfully reached its design capacity, which will enable the company to improve the quality of shipped coal and increase the number of deliveries to premium Asian markets.
Developing assets in the Khabarovsk region
In 2020, we further developed our Urgal operations, which are situated less than 1,000 km away from the Vanino Bulk Terminal, and have no significant transport restrictions. During the year, we relocated some of the equipment from the Bureinsky open-pit mine to Pravoberezhny, seen as a more promising and efficient site. This makes possible an acceleration of the development of Pravoberezhny to its target capacity of 6 Mt. Looking at the effects of this optimisation, production in 2020 totalled 3.2 Mt, while in 2019 it was only 2 Mt. In addition, at the Severnaya mine, we continued the transition from two to one high-performance longwall faces, while maintaining the production target of 4 Mt per year.
Our priorities for 2021
SUEK also plans to increase production and sales of high-CV thermal coal with a calorific value of more than 5,800 kcal/kg. Thus, we will aim to wash more coal at the Chegdomyn WP and the Kirov WP, and further develop coal quality management systems in Buryatia and Kuzbass.
SUEK also plans to maintain stable supplies to the domestic Russian market.
Improving production safety remains a priority. We stay committed to minimising accidents and fatalities, and more generally continuing to work on the reduction of occupational injuries. We will also continue to introduce georeferencing systems in its underground mines.
We will continue to develop our mining assets such as the Pravoberezhny open-pit mine, as well as the Yalevsky, Taldinskaya Zapadnaya-2, November 7th — New and Severnaya underground mines. We will also accelerate the development of our underground mines, reduce the duration of relocation work and improve production rates for the dump trucks at our open-pit mines.
In 2021, we will continue the trial operation of unmanned dump trucks in Khakassia and will consider the possibility of replicating this experience. We also plan to implement in Kuzbass the first pilot projects to switch from transporting materials and people to the mine using monorail and ground transport (travelling at a speed 2–3 km/h) to using more efficient pneumatic vehicles (with a travel speed 20 km/h).