Friday, 7 October 2011

Polish Mining Opportunities and Entry Strategies

Exports of minerals in Poland are expected to increase during the forecast period as a result of increased demand from developing economies, which were less affected by the global economic crisis. The growth of the Chinese and Indian economies is expected to increase the demand for Polish metal exports, with China expected to become one of the major importers of minerals from Poland in the next five years.

London – 07 October 2011 – The Polish mining industry is undergoing a period of transition as it continues to record growth. While coal accounts for the majority of mineral production in the country, exports to major export destinations are expected to fall due to stricter EU guidelines surrounding greenhouse gas emissions. However, according to a study conducted by ICD Research, the demand for non-metallic minerals and metals will increase due to rapid domestic development and the construction boom in China and India. Furthermore, the privatization of the industry will increase foreign investment as confidence in the sector continues to grow.

The value of the Polish mining industry grew from US$6.1 billion in 2004 to US$12.3 billion in 2009. However, the industry recorded a decline in both production volume and value in 2009 as a direct outcome of the global economic crisis and its negative impact on European economies. Both the volume and the value of the minerals produced in the country registered a decline in 2009.

The total volume of minerals produced in the country is expected to increase leading up to 2015. The domestic demand for metals is expected to increase due to the growth of the manufacturing industry. Furthermore, the demand for non-metallic minerals is expected to increase as a direct result of the large-scale construction and infrastructure projects emerging from Poland’s hosting of the UEFA European Football Championship 2012. However, despite accounting nearly two-thirds of industry production, the production of coal is expected to decrease over the forecast period.

EU policies expected to decrease coal production
Coal accounts for the majority of mineral production in the country. However, coal production declined by almost 25 million tons over the review period, largely due to the removal of government subsidies from the sector, which maintained the price of coal at an acceptable level.

Furthermore, future Polish energy policies will encourage a major decline in the production of coal and a shift to cleaner energy under EU guidelines to reduce its emissions of greenhouse gases. The Energy Policy of Poland states that hard coal production should decline to approximately 80 million tons by 2020, with none exported. However, as coal is cheap, readily accessible and in abundance, policies will need to be enforced in order to reduce the use of the mineral in the country.

Global growth expectations
The majority of Polish minerals exports are bought by neighboring EU countries. Germany accounted for a quarter of the total mineral exports value in 2008, followed by the Czech Republic with almost 10% and France with approximately 6%. Therefore, the recession of EU economies in 2009 resulted in a decline in the demand for minerals.

Growth in investor confidence
Poland is the fastest developing country in the EU and is ranked among the top 10 countries in the world for FDI confidence, second only to Germany in Europe. Despite the global financial crisis, foreign direct investment (FDI) in the Polish mining industry rose in 2009. This is largely due to the decision of the government to increase privatization in the industry. As a result of such policies, Poland was the only country in the EU that did not enter recession during the recent crisis, and foreign investor confidence is expected to continue to rise during the forecast period.

Privatization increases foreign investment
The Polish government is keen to privatize its state-owned mining companies by the end of 2011 due to its high fiscal debt. This will be a major factor in creating opportunities for foreign investors to acquire businesses in Poland. The industry requires over US$7 million of investment by 2015 to remain competitive with other global markets. Disinvestment will take place through the issue of shares, public offers or private individual investments.

During 2009, the government failed to reach its target from asset sales; however, in the first six weeks of 2010, an improved economic environment saw over US$1 billion added to the total proceeds through privatization.

Foreign mining companies have only a small market presence in the Polish mining industry, with no foreign firms operational in the copper, silver or coal markets. However, foreign companies such as ArcelorMittal have an increasing presence in the steel and aluminum markets through wholly-owned subsidiaries.

In particular, opportunities are expected to emerge for private and foreign investors to capitalize on the large coal, silver and copper deposits in the country. However, the strong presence of industry unions as a direct result of the previous state ownership of the industry may pose a challenge for potential investors. Not only have mining unions been successful in changing government policies, but they have also often been successful in postponing the privatization of many companies, including KGHM Polska Miedz and Bukowa Gora.

To buy the full version of the report “The Polish Mining Industry – Market Opportunities and Entry Strategies, Analyses and Forecasts to 2015,” please click here.

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