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By John Helmer in Moscow

A briefing by Russian coking coal producer Raspadskaya this week suggests pessimism that sales to the domestic steelmills will recover beyond their current monthly level. For brokers and speculators, the fortunes of the publicly listed mining company (ticker RASP:RU) now depend on betting that China will continuing substituting costly home-grown coal supplies with cheaper Russian imports, and that Russian miners like Raspadskaya can continue beating the Australians and South Africans on price.

Deputy General Director Alexander Andreyev said on June 17 that Raspadskaya is currently operating at a 75% capacity utilization rate, compared to pre-crisis September 2008. At that time, the company produced 734,000 tonnes of coking coal concentrate, so the implied June 2009 output should be about 550,000t. The last officially reported production figure from Raspadskaya was for March at 529,000t.

Andreyev also said that the current price for his concentrate is $53 per tonne.

According to a report on Raspadskaya today by Michael Kavanagh, steel analyst at Uralsib Bank, coking coal output in April and May was also at the 550,000t level, so “production appears to have reached a plateau.” He also notes that earlier targets announced by the company have not been met. “Raspadskaya’s management had previously stated that 2Q09 production was expected to be 2.5 mln tons of coal (1.87 mln tons of concentrate), and that production capacity utilization should reach 80%. It now looks as though 2Q09 production will be just 2.2 mln tons of coal (1.65 mln tons of concentrate), which is 12% below the previous target. ”

The depressed output picture may reflect lower than forecast export levels, the analyst believes, as well as slowness in the domestic market to resume higher levels of buying beyond the 360,000t per month figure, which has been unchanged through the second quarter. “We cannot exclude the possibility of a further decrease in Russian crude steel production resulting in lower demand for coking coal,” Kavanagh says. Sounding a bleaker note than this week’s high-capacity announcement from Mechel, Kavanagh reports “we see no real signs of further recovery in the steel industry.” Raspadskaya’s main clients in the domestic market are Magnitogorsk and Novolipetsk.

Like the other domestic coalminers, Raspadskaya is traditionally focused on supplying domestic buyers for up to 80% of its output. For exports, Ukrainian steelmills usually accounted for the main demand. Troika Dialog, which has been among the most optimistic of the Moscow investment houses on the prospects for Russian steel and coal share prices, reported at the start of this week that “the recent surge in Chinese coal imports has been the most important development for the sector YTD, which can potentially redefine the investment case for coal …The increased attractiveness of imported coal for Chinese buyers is probably explained by the favorable price differential, which rendered Australian imports cheaper than domestic material, especially for coastal mills. Once local [Chinese] prices have adjusted, we may well see imports decline in 2H09, so it is probably too early to think about China as a sustainable coal importer.”

Sergey Donskoy, coal analyst at Troika Dialog, is forecasting an average Russian coking coal concentrate price for this year of $55/t. He believes that the price is stabilizing at 13% of the price of hot-rolled coil, which he reports as the average ration for the 2004-2007 period. Last year at peak, the ratio shifted in coal’s favour to 19%.

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