The glass-walled high-rise tower above the port in Prague’s Holešovice district used to house the headquarters of Kovo, once one of the biggest Czech international trade companies. Today, the upper floor is home to the commercial department of OKD.
As a result of his busy schedule, our interview with OKD Sales Director Petr Otava took place in two stages. The first began just after 7am, by which time Otava had already held his team conference.
Do you always start this early?
Very often. The day isn’t inflatable and we have much that we must do. My staff are used to it.
What exactly do you do during this time? A layperson might think that each quarter you negotiate prices, renew contracts and then you have three months peace…
The majority of contacts are indeed negotiated on a quarterly basis, but we must remain in day-to-day contact with the market throughout. We must monitor global trends – Australia and America if we are dealing with coking coal; Poland, Russia, Columbia, South Africa and Australia if we are dealing with thermal coal. We need to know what will affect demand in the energy industry and in all of industry. For coking coal, the situation in the steel industry is key. We must maintain a thorough knowledge of the market across the entire Central and Eastern European region; it’s crucial to know what our competition is doing, particularly in Poland. There certainly isn’t little to do. ¨
Which trends, apart from prices and production costs, do you need to monitor?
In the case of coking coal, we primarily monitor supply and demand that exists in the market. If there are floods in Australia and the mines are closed, the global supply of coal will fall. That is why we monitor how the entire global economy is functioning, including the strength of the steel industry, construction and other branches. In the case of thermal coal, the story is similar – we monitor the performance of the economy and with that related electricity usage, CO2 credits and so on. Apart from that, there are also cement factories, which are dependent on the performance of the entire construction industry. In the last three years, cement factories functioned at 30-40% of their capacity, due to a lack of demand.
What impact on your negotiations do events in far away markets have?
The markets are more and more open and so as the yield volume falls in our specific region, we are seeing a notable increase in imports of thermal coal from the east, particularly from Russia, and coking coal from the US. For example, today Russian coal is traded monthly and primarily on the spot [a spot price reflects the price of a commodity in a specific time and place and is determined on commodity exchanges] and we must therefore know what coal, in what quality and for what price our competitors are able to deliver, as well as their transport costs and all the other factors related to such acquisitions. It is not enough to source such information from various reports, which we receive daily; we can only gain this information by moving around the market on a day-to-day basis. And that is why we have regular meetings with our customers and partners.
How many customers do you personally devote your energies to?
We have around 200 permanent customers. I personally deal with around 50 of the largest ones. We try to understand their situations and the level of demand for their products. Things certainly do not function in the manner of simply closing a contract and that’s the end of it. Each contract, even if we are not dealing with a concrete trade, is in essence a preparation for the next negotiation, which will take place in a quarter of a year at the latest. We need first-hand information and there’s no other way to gain this than on the personal level. We have to have people in our team that understand production and who know what producers can and cannot afford to do on a given day. We prepare monthly plans of deliveries, but this must also be updated according to actual demand and the situation in our mines.
How do you co-ordinate the requests of customers with the actual mining yield?
The ideal situation is when we prepare a plan, an order arrives from a customer, and the official taking care of this connects with dispatching in Ostrava. They then organise loading at individual mines, and we take care of logistics, monitoring the train carrying the coal along its route until it arrives at its destination. Our business is only concluded at the point where the customer pays for the goods.
And do your customers pay on time?
Yes, fortunately, they do.
Do you always have at your disposal precisely what customers are asking for, or do you tend to monitor what kind of coal your colleagues in the mines happen to have come upon and then make efforts to try to sell that?
Naturally, we know what our production at individual mines is able to offer at any given time. The qualitative parameters of coal are a given, and we can only influence this very minimally. And our customers know this all too well, as we undertake long-term co-operation with the majority of them. Thermal coal is routinely graded along standards of heating ability, the amount of ash and sulphur – although, thus far, essentially no indexes exist for coking coal. So customers know the specific quality of coal coming from, for example, OKD’s Darkov or Paskov mines. They won’t find anything else like it on Earth – even in OKD’s ČSM mine and even, for example, in Australia. Coals from various locations are incomparable. Thus, customers buying coking coal are actually buying a concrete “brand”. I do think, however, that within three years, we will see a new global index for coking coal.
What is the range of coal types that you offer?
We generally define two types of coal in our production: thermal coal and coking. We’ve adopted this terminology in order that foreign investors can better understand us and so that our analysts can make comparisons with other companies around the world. Thermal coal in practice is represented by three main products – high-heat clean coal, powdered coal and shed coal. This is mainly used by electricity plants, heating plants and cement factories. Coking coal is divided into two main categories: hard coking coal and semi-soft coking coal.
Do you also trade in coke – what types do you have on offer?
We divide coke into three basic types: metallurgical coke [used in steel production], foundry coke and then various kinds of heating coke intended for industry, for example, for sugar refineries or lime works, but also for the home too. Coke production also leads to the creation of a series of chemical by-products, which can then be sold, for example: coke-oven gas, benzol, tar and others.
Let us return to your price negotiations. How long does it usually take for you to agree on a price for the next quarter with a client that you have known for years?
It’s all about the tactics one uses in negotiating and it’s different with each customer. It depends on how well we know each other. Naturally, it helps when we know how a specific partner will behave during negotiations; how they think, what expectations they may have at the start. Only very rarely does it happen that we reach an agreement right at the outset.
Does hardball negotiating prevail, or does it tend to be a more friendly affair – a kind of social game?
It’s the same as with any business. Of course, we want to sell at the highest price, and the customer wants to buy at the lowest price, but usually we both understand that there is an ultimate need to reach an agreement. We have customers who value the fact that we conduct ourselves in a standard, transparent and fair manner for the entire duration of our cooperation, and those then stay with us, even when competitors offer them somewhat lower prices. Others may say that this is the market price and we will purchase elsewhere if you won’t give it to us. The negotiations can, for example, last ten rounds, with exchanges of views via telephone on top of that in cases when there’s a sense that we may be heading to a meeting where we will again fail to agree. We seek a compromise and in most cases we succeed in finding it, as long as both sides understand what is market-based and reasonable from each party.
Do you ever experience surprises during price negotiations, the kind that change your tactics and approach to a given client?
The year of 2009 was a year that surprised many people, but that was an exception. After many years in the business there isn’t much that can surprise me. Of course, occasionally a customer may be angered or offended and decide to purchase elsewhere, but this doesn’t tend to happen much in the coal business. We tend to be careful in all circumstances when we are negotiating. The region only has a limited circle of purchasers and suppliers and each dispute represents an unpleasant problem. We are not in a position, as Australian companies are, to sell coal for the same price to China, Japan, Korea, India, Brazil or wherever else. We cannot afford to upset our customers – in lieu of our geographic position, it isn’t realistic to consider that we would transport our coal somewhere far beyond the region.
To what extent do spot prices play a decisive role, and what is the influence of long-term ties with clients and an above-standard service?
World spot prices and various price indexes can provide a corroborative argument, but for us the price levels in the region are always decisive. If, say, the spot price is 100 and Polish companies start selling for half that, we have to factor in the closest competition and the API2 price in Rotterdam tends to provide more of an assistive perspective. Other times, a situation can arise where both we and the Poles have, by way of the influence of production costs, higher prices than the spot ones. Then we have to calculate whether an alternative exists on the market, for example, from Russia, in order to remain competitive in our prices. And not least it is also important to note the kind of service we are able to provide to customers. For example, we have “just-in-time” deliveries, the maintaining of quality, and a methodology for addressing problems. This is something that our customers know well and truly value. A quality service increases the certainty that we will hold on to a customer, even if a competitor offers a slightly lower price.
Who are the key players that determine events on the European markets where NWR operates?
The market in coking coal is strongly influenced by global developments, which means Australian or American producers such as BHP Billiton and Rio Tinto. But we must always first follow what is taking place in Poland – what, for example, Jastrzębzka Spółka Węglowa, Katowicki Holding Węglowy or Kompania Węglowa are doing Thermal coal is a regional matter and the market is witnessing increasing levels of overproduction from Poland, while the significance of Russia is also growing. Conversely, South African, Columbian or overseas coal in general, thus far, tends not to be imported at all into the region.
What about Ukraine?
Ukrainian coal has a high sulphur content and because of environmental reasons it will likely never be imported in large quantities into the EU. This coal tends to be primarily utilised by local buyers.
How did you come to work in the coal industry?
Our family has worked at OKD for several generations. My grandfather spent practically his entire life in the Ostravian mines. In the 1980s, he was the director general of OKD.
So he too started as a miner?
He was formerly a mechanical engineer, working at Bastra [a Czech producer of mining technology, once owned by OKD, now part of the Bucyrus company] and later worked in the management of the company. That was the first generation, at least as far as I remember. Similarly, my father and also his brother studied at Báňská [VŠB – Technical University of Ostrava] and after that entered into the mines. I only caught the scent in the 1990s when my father, along with Mr. Koláček, privatised the Czech-Moravian Mines and Metalimex. Back then, I was studying business at Ostrava and my studies had nothing to do with coal. My father offered me a position in the sales department of Metalimex, which was a specialised company within OKD tasked with sales responsibilities. So after finishing my studies, I moved in 2000 to Prague and began working as an official in the fuel division.
You did not wish to remain in Ostrava?
Right until the moment of my departure, I was an Ostravian patriot, but in reality I probably would not have remained there anyhow. I certainly would not have been involved in the coal business, perhaps I would be working in trade, but likely in another industry, or perhaps I would be involved in economics and finance.
So today you function in Prague?
Yes, my base is in Prague. I moved here and established a family. But I travel to Ostrava as often as is required – almost every week. Friends have remained in Ostrava, but I don’t see them often.
When you worked in the company led by your father, did you ever face prejudices that you were your Daddy’s protégé?
It’s not particularly pleasant when a son enters a company headed by his father. But what is more important is how the surrounding people view such a person; how they present themselves, how they work; they basically have to show that he is no worse than the others and that they will bring something to the team. I started from scratch, processing invoices, orders and back office work. Gradually, I gained the opportunity to do more challenging things until in the end I became the manager and later managing director of the sales department.
Do you still discuss the market with your father? Are there situations where he can provide help?
We tend to dissect it from a wider perspective, what is going on in the steel and energy businesses and in the world and so on. He hasn’t been actively involved in the coal industry for a number of years. If a person leaves the trade for, say, a year, then it’s no problem to get back into it, but it’s crucial to have day-to-day contact with the market.
Is it usual in your circles that coal trading becomes a multi-generational affair?
Certainly I know many such examples from Germany, Poland... Coal is a specific commodity and rarely does a regular person take an interest in it or understand what the difference is between coal and coke. Very few people are involved in the coal business – in Europe it can’t be more that a thousand in total. It is, in essence, a specialised business.
What are the relationships like in this business community, is it easy to make friends or is it more of a pragmatic friendship, based on commercial needs?
It’s a relatively small circle of people and they tend to see each other often, so it isn’t difficult to build personal contacts and friendships after a time. But it isn’t possible to be friends with absolutely everybody.
Is it difficult to leave friendships behind when tough price negotiations are taking place?
| » The market in coking coal is strongly influenced by global developments, but we must always follow what is taking place in Poland.« |
Friendships can’t be applicable in such circumstances. Even your best friend will sometimes take offence, get up from the table and storm out of the room. We calm such incidents down later, once cooler heads can prevail.
How do you spend your free time? Do you actually have any time left after all that work?
Not much. I continue to think about how to free up some time. I have a small son, so I at least try to make time at weekends. Recently, I’ve also started playing golf.
Where do you enjoy playing most, in the Czech Republic or abroad?
I mainly play in the Czech Republic and Spain.
Can you manage to leave work behind while playing golf? Or is golf an instrument of work?
Many trading partners play the game. And anyone who knows golf will tell you that amidst the enthusiasm of a golf game, you won’t find a good venue to discuss serious issues. Although at the proverbial 19th hole, meaning the clubhouse, discussions do frequently turn to business.
Where do you travel on vacation most often?
We travel regularly to Spain. And during winter we always go skiing for a week in St. Moritz, while we also try to arrange at least one summer holiday.
Who at home decides where the holidays will be?
We decide together. We always try to choose somewhere where we haven’t yet been.
If you could change anything in your current professional or personal life, what would it be?
I’d probably try as soon as possible to work outside in a larger company in a more developed market. You can’t buy those kinds of experiences, and the sooner you gain them, the better the dividends they pay later. Today, I have, after all, a family, a kind of foundation, so similar considerations are more complicated.
Was it a major change when OKD was incorporated into the structure of NWR and many things began to be viewed from a new perspective?
It was certainly a change, if only for the new people that came into the group. Klaus-Dieter Beck, Mike Salamon and Hans-Jürgen Mende, for example, as well as other notable figures. In short, people who could view business from a global perspective. In many areas, I had to adapt and undertake some additional learning, for example, in international financial terminology, which, until that time, we had never used. But Zdeněk [Bakala] and Peter [Kadas] [NWR directors and representatives of the Company’s largest shareholder] perhaps knew that I was able to view the coal and coke markets from a wider perspective than the Ostravian one alone. I owe them both a great deal for giving me this opportunity.
And from the point of view of OKD and someone who has truly known the company for a long time, what has changed now?
Changes came along with a new chief executive, Klaus- Dieter Beck. He changed the company from A to Z, from the company culture right through to a new system of management. This was also enhanced by the fact that he brought in new people, such as Míla Trgiňová [OKD finance director]. I am glad that I can work with him and that he showed me what can be done with the company. Certainly, he was helped considerably by the situation in the market and the price of coal, otherwise, he could not have afforded to change the company at the pace at which he did. Nonetheless, he has my enormous respect for the manner in which he carried out these changes.
If OKD was not a member of the NWR group, could it still afford major investment projects such as POP 2010, or to consider acquisitions in the Polish mining industry?
Such considerations with regards to Poland were already here beforehand, but they never really got going. And talking about investments and their financing, OKD never had a team that was able to go and raise money from the financial markets – to go to the major banks in London and so forth. Our colleagues from NWR know how to do this, and it helps tremendously. Banks and institutional investors already view NWR differently, because it is on the stock exchange. If I compare it to the situation five years ago or 10 years ago, then today we have far different and wider opportunities than was ever the case in the past.