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Annual Report and Accounts 2011 / Business Review / Coke 

Coke

Highlights

Coke conversion unit costs 60EUR/t

  • Maintained position as the largest producer of foundry coke in Europe
  • Newly constructed battery No. 10 fully operational
  • Coke conversion costs per tonne reduced by 17 per cent driven by modernisation and consolidation of our coke roduction facilities in a single plant
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1 Average sales price per tonne.

Michal Kuča
Director of OKK, Chairman of the Board of Directors of OKK

 Michal Kuča
 Michal Kuča  Michal Kuča  Michal Kuča
OKK maintained its position as the largest producer of foundry coke in Europe. With the newly constructed coking battery no. 10 fully operational and serving a diverse range of customers, production is now significantly enhanced: less energy-intensive and equiring lower maintenance. As a result our coke unit conversion costs were 17 per cent lower, excluding the impact of urrency ovements, than a year ago.

Our operations have been successfully restructured and our strategy for the future is focussed on maintaining premium coke quality whilst managing costs.

Coke highlights of 2011

2011 has been a milestone year for the coke business with progress on all fronts, which leaves the business well positioned for the future as the industry continues to face uncertain times. At the beginning of 2011 we completed the transfer of all production to one facility, at Svoboda, and this concluded our large-scale investment programme, COP 2010.

As a result, we have significantly reduced costs, transformed safety and further reduced the impact of our operations on the environment. Unlike our previous configuration, the new plant is able to produce the full range of coke products with foundry coke being the higher-margin product.

Our operations have been successfully restructured and future capital expenditure in OKK will not match the magnitude of recent years. Our strategy for the future is focused on maintaining premium coke quality and managing costs rather than developing new capacity.

Safety

Safety continues to be an important focus for OKK and, given the nature of our 24-hour, 365-days-a-year operations, we are pleased to have achieved major improvements this year.

This achievement is underpinned by our comprehensive system of training and communication, which involves regular training for technicians, supervisors and foremen, and discussions with our internal staff and contractors. We have invested in the latest technology to include breathing apparatus and safety fuses for benzole absorption coolers.

Operational performance

Coke production in 2011 was 770 kilo tonnes - lower than in 2010 principally due to the planned closure of the outdated Jan Sverma coking plant, which reduced the Company’s coke production capacity.

The consolidation of our production has significantly enhanced our cost position and coke unit conversion costs were 17 per cent lower than in 2010, on a constant currency basis, as our new production is considerably less energy intensive and requires lower maintenance costs than running the older plant.

One other significant advantage of our new facility is the ability of all four batteries to produce both foundry and blast furnace coke, giving us the ability to change production schedules to meet demand. This has proved to be a great asset during 2011 as we have been able to react flexibly to the changing market environment and increase the proportion of foundry coke in our production and sales mix.

Coke sales

Coke sales for 2011 were approximately 67 per cent foundry coke, 23 per cent blast furnace coke, and 10 per cent other types.

Coke prices are set quarterly and the average realised sales price during 2011 was EUR 365 per tonne, an increase of 33 per cent compared to the previous year.

Costs & revenues

Revenues for the coke segment decreased by 31 per cent to EUR 237 million, as the increase in prices was more than offset by the decrease in sales volumes, due to our reduced coke capacity, as well as due to weak demand for merchant coke in the second half of 2011.

Main operating expenses for the coke segment decreased by 10 per cent in 2011. Excluding the impact of currency appreciation, main expenses for the coke segment decreased by 12 per cent in the period, as lower production was partly offset by the increased unit price of coking coal.

Despite the 23 per cent decrease in production, coke conversion costs per tonne, which exclude the cost of coal inputs and transportation, decreased by 17 per cent, excluding the impact of currency movements, driven by the modernisation and consolidation of our coke production facilities in a single plant.

Challenges

In the second half of 2011 the European coke market tightened, which affected our performance and prompted us to lower our coke sales guidance for the full year 2011. Some coke customers from the steel industry have their own captive coking facilities and use third-party coke merchants to supplement supply when necessary. When steel producers’ utilisation capacity decreases, a major challenge for any stand-alone coke merchant like OKK is that steel makers with captive supply do not buy its products. Even when coke unit production costs are relatively low, customers prefer to maintain their own production rather than mothball their coke plants and buy third-party coke.

Whilst independence from any single customer enables OKK to serve a relatively diverse variety of customers, it still means that we are dependent upon the dynamics of the European coke market. In times of weak customer demand OKK stockpiles coke as many customers reduce stock levels in order to lower their working capital requirements.

Continuous Improvement Programme (‘CIP’)

OKK has been successful in linking the performance of the business as a whole to the actions of individuals. Under the CIP initiative, OKK employees are eligible for financial rewards in return for improvements in quality, simplification and/or reduction in the costs of working processes. During 2011, the CIP delivered savings of around EUR 2 million.

Environmental

During the year we succeeded in our application to the Czech Ministry of the Environment for the reconstruction of the quenching tower no. 2 for coking batteries nos. 9 and 10 with the objective of further reducing emissions of solid pollutants. During 2012 we intend to reconstruct the dust exhaust of flue gases at the coke separation facility no. 6 to further reduce solid pollutant emissions.

In addition to dust suppression and waste removal measures successfully taken during 2011, we commissioned an independent study on the identification and/or elimination of possible sources of secondary dust nuisance, the re-suspension of dust particles and the further prevention of leaks. This research will be completed in 2012 when we will look further into the economic and technical viability of the outcomes as we endeavour to improve the impact of our operations on the environment. During the years 2012 and 2013 a benzole washing unit will be reconstructed.

As a major industrial operation in the region, OKK regularly cooperates with the Czech Ministry of Environment and related authorities on ways to ease the environmental impact of our operations. In reviewing the Moravian-Silesian Regional Authority, Integrated Pollution Prevention and Control (‘IPPC’) conditions, on the recommended tightening emission limits applicable to coke production processes, the paper will be reformulated into new operational criteria following a mutual agreement with OKK.

2012 Outlook

The demand for merchant coke continues to be weak in the European market. We expect to produce 700kt and sell 600kt of coke in 2012. Coke unit conversion costs are expected to increase, in line with an expected decrease in production in 2012.

Michal Kuča
Director of OKK and Chairman
of the Board of Directors of OKK

Case study

New battery no. 10 in full operation

The construction of a new coking battery at the Svoboda coking plant in Ostrava was successfully completed in autumn 2010.

In April 2011, representatives of the relevant state administrative bodies conducted inspections to test the coking battery’s compliance with safety and environmental criteria before granting final approval. The battery has an annual production capacity of approximately 225 kilo tonnes per year, and principally produces foundry coke.

The new coking battery meets the highest environmental standards. Measuring stations, which continuously monitor harmful emissions, have been installed on and around the battery as well as around the entire Svoboda facility, and the data is evaluated on a regular basis. The battery is of a ‘Still’ design, and as such it operates at lower temperatures, leading to lower NOx emissions.

 Case study
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In the beginning of 2011, OKK integrated its production to one plant, Svoboda coking plant, in Ostrava-Přívoz. This was made possible thanks to the construction of a new coke oven battery No. 10 as a key part of COP 2010 program and refurbishment of the battery No. 8. OKK focuses on the production of foundry coke which is the largest European producer.