***SPOTLIGHT: Concern mounts after Raspadskaya blast

At 12:55am on May 9 a massive explosion ripped through the Raspadskaya coking coal mine in south-western Siberia.

Russia’s Prime Minister Vladimir Putin (pictured right) and Emergencies Minister Sergei Shoigu visit the site of the explosions


At 12:55am on May 9 a massive explosion ripped through the Raspadskaya coking coal mine in south-western Siberia.

Four hours later, soon after a rescue effort had been mounted, a second explosion shook the mine.

As the dust settled it became clear that 19 rescue workers had been killed, and 66 people had been confirmed dead by the end of the last week, local media reported.

Another 60 people remained unaccounted for. A tragedy, and one that quickly saw Russian leaders, including prime minister Vladimir Putin, fly in to the disaster site.

The cause of the blasts remained unclear at the time of writing, but they have enormous implications, and not just of a human type.

In the steel market, concern mounted when it emerged that Magnitogorsk Iron & Steel (MMK) will offer no slab for export in June and may offer less hot rolled coil to its overseas customers, ostensibly as a result of the disaster.

In a letter seen by MB, MMK highlighted changes in the “situation with coking coal”.

Soon afterwards, a spokesman for the company played down the impact of the explosions, saying the company only sources around 10% of its coking coal from Raspadskaya — the company sources around 80% of its coking coal requirements from Belon, in which it acquired a majority stake in late 2009.

“They can pull rank”, and order another trainload of coal, one analyst told MB.

But the damage had already been done, and investors remained concerned until other Russian steelmakers made similar statements.

Evraz, whose Nizhny Tagil (NTMK) steel mill had been identified early on as being heavily reliant on coal from Raspadskaya, was one of them.

Industry analysts believe that Raspadskaya provides 12-25% of the Russian steelmakers’ total coking coal requirements.

The company plans to source more coking coal from the Yuzhkuzbassugol mine to make up for the shortfall, a spokesman told MB, saying the company had around two weeks’ supply of coking coal in stock, and expected to find new supply by the time this runs out.

“We are paying much attention to this situation,” he said, dismissing concerns that the disruption would affect NTMK’s semi-finished and finished products output.

While some analysts were less positive, saying that some steelmakers could experience difficulty in sourcing coking coal supply in the near term, they agreed that the accident would not have a significant impact on Russian steel production in the longer term.

“The situation should normalise in two or three months,” said one.

Russian mines produce around 70 million tpy of raw coking coal, around 25% of which is shipped overseas.

Ukrainian steelmakers might not be as lucky.

A large portion of these exports are dispatched to Ukraine, and the pinch could be worsened if Evraz decides to divert shipments from its Bagleykoks, Dneprkoks and Dneprodzerzhinsk coking plants, which supply local steel mills.

“Ukraine depends on these deliveries from Russia,” an analyst based in Kiev told MB.

Raspadskaya produced 7.7 million tonnes of coking coal in 2009. 28% of this tonnage was shipped to Ukraine. In total, the country consumes 27 million tpy. And the majority is sourced from Russia.

“There is no doubt that Ukrainian mills will be adversely affected,” another analyst said.

Raspadskaya, in the meantime, is in tatters.

“Raspadskaya’s management has not yet issued any official statements with regards to the time and funds it will take to rebuild the mine,” ratings agency Fitch said. “Raspadkaya’s credit profile could be negatively affected if the mine remains closed for a long period and if the company significantly increases borrowings to finance post-explosion operations.”

Details of the true extent of the damage at the mine, or how long it will remain inactive, are still scarce.

Credit Suisse quoted Kemerovo region governor Aman Tuleyev as saying restoration of the mine could take up to eight months at a total cost of $200 million, while Raspadskaya director Gennady Kozovoy was quoted as saying shipments from the mine could be cut by 50-60% after three days.

The company produces 15% of Russian steelmakers’ coking coal supply. An extended will mean a sustained period of less exports and higher prices.

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