Balance of supply and demand in the Russian market for coking-coal concentrates

ISSN 1068�364X, Coke and Chemistry, 2010, Vol. 53, No. 11, pp. 416–427. © Allerton Press, Inc., 2010.Original Russian Text © V.A. Brodskii, 2010, published in Koks i Khimiya, 2010, No. 11, pp. 25–38.

416

With some regularity, over the course of many years,the journal Koks i Khimiya has published analyses of thestate of Russian coking coal resources and predictionsof their changes [1–5]. These studies are based on acomparison of the rank structure of the available coaland that of the optimal (ideal, classical) coking�coalbatch. As a rule, they identify an alarming and continu�ing decline in rank structure and predict an accompa�nying deterioration in coke quality, increased coke con�sumption in blast furnaces, and loss of performance.Various measures have been proposed for state regula�tion of the market in coking�coal concentrates: in par�ticular, the introduction of state quality standards forconcentrates and penalties for their violation; the intro�duction of stiff export duties on concentrate of valuableranks; the abolition of import duties on concentrates;improvement in coal classification; and stimulation ofcoking�coal extraction by means of incentives for the

development of new mines.1

However, not all specialists agree with this assess�ment of the Russian concentrate market, which isbased on the concept of optimal coking�coal batch.While underrepresented in print, the critique of thisapproach is consistently heard at meetings and confer�ences: for instance, at the 2008 hearings of the FederalAntimonopoly Service in relation to the appeal ofOAO NLMK and OAO MMK regarding the shortageof coking�coal concentrates; and at the meetings insummer 2010 at the Russian Ministry of Industry andTrade regarding the declining production of clinker�ing�coal concentrates in the aftermath of the disasterat the Raspadskaya mine in May 2010. The criticismsmay be divided into two groups: inadequacy of the

1 While concentrates of energy coals are also economically impor�tant, they are not considered in the present work. Any referencesimply to concentrates may be understood to mean coking�coalconcentrates.

method of calculating the balance; and unreliability ofthe initial data.

In the present work, we consider the shortcomingsof optimal coking�coal batch as a means of calculatingthe balance of supply and demand in the Russian mar�ket for coking�coal concentrates. We propose a morereliable calculation method, which relies on baselineplanning.

Methodologically, our starting point is that differ�ent methods of calculating the balance of supply anddemand in the concentrate market may be describedby a corresponding economic model. The validity ofthe models will be determined by the validity of thesimplifying assumptions on which they are based [6].

REFINEMENT OF CONCEPTS

We begin by refining some concepts invoked in cal�culating the balance of supply and demand in the Rus�sian market for coking�coal concentrates.

Product and Geographic Boundaries in the Concentrate Market

Intuitive concepts regarding the Russian market forcoking�coal concentrates are inadequate in assessingthe balance of supply and demand. We must define itsproduct and geographic boundaries.

The concepts of a commodity market, the productboundary of the market, and its geographic boundarymay be found in the federal law regarding the protec�tion of competition [7] and in the standard method ofanalyzing competition in a commodity market [8].The standard definition of a commodity market is asfollows: a commodity market is the sphere of circula�tion of a commodity (including a commodity pro�duced abroad) that cannot be replaced by anothercommodity or of mutually interchangeable commodi�ties, within the boundaries of which (including geo�

ECONOMICS AND ORGANIZATION OF PRODUCTION

Balance of Supply and Demand in the Russian Market for Coking�Coal Concentrates

V. A. BrodskiiOOO UK Mechel, Moscow, Russia

e�mail: [email protected] October 20, 2010

Abstract—Various methods are considered for calculating the balance of supply and demand in the Russianmarket for coking�coal concentrates within the planning (prediction) period. The proposed computationalalgorithms maintain, in the planned period, the structural proportions corresponding to the baseline period.

DOI: 10.3103/S1068364X10110050

COKE AND CHEMISTRY Vol. 53 No. 11 2010

BALANCE OF SUPPLY AND DEMAND IN THE RUSSIAN MARKET 417

graphic boundaries) the purchaser may acquire thecommodity on the basis of economical, technical, orsome other possibility or expediency, whereas there isno such possibility or expediency beyond that sphere.

The key concept in this definition is that of inter�changeable commodities. This concept is defined in thefederal law regarding the protection of competition[7, p. 4]: interchangeable commodities are commodi�ties that are comparable in their function, use, charac�teristics, value, and other parameters, so that the pur�chaser in fact replaces, or is willing to replace, one bythe other in consumption (including consumption forproductive purposes).

The product boundary of the market is defined asfollows in the standard method [8]: as a commoditywith no replacement—or several interchangeablecommodities (work activities, services)—that may besaid to circulate in the same commodity market.

Today, among coke�industry specialists, there is noconsensus regarding the interchangeability of differentcoal concentrates and correspondingly no consensusregarding the product boundary of the commoditymarket. For example, all types of concentrates areregarded as commodities within a single marketaccording to an analysis published on the website ofthe Federal Antimonopoly Service [9]. Conversely, asubmarket in coke�group coals has been identifiedwithin the coking�coal market in a ruling by the Fed�eral Antimonopoly Service [10]. We now consider thistopic in more detail.

As we know, all the ranks of Russian coking coal(sometimes known as pure coals)—but not mixturesof different types of pure coal—are divided into threegroups on the basis of their role in coking: the cokegroup (K, KO, OS), the clinkering group (GZh, Zh),and the lean group (KS, KSN, GZhO). This classifi�cation seems to mean that the coals in the same groupare interchangeable. However, specialists have identi�fied specific cases where the interchangeability of dif�ferent coals within the same group is incomplete.

Instances in which the properties of coal of thesame rank differ significantly if the coal is derived fromdifferent mines—or from different sections of thesame bed within the same mine—may be found in [5]and elsewhere. Accordingly, those who support theconcept of optimal coking�coal batch assert that theranking system in State Standard GOST 25543–88does not always permit the identification of coal prop�erties with the precision required to determine their

interchangeability for purposes of coking.2

2 In practice (and in various publications), a combination of twoidentifiers is used to specify regular coals: the rank + the mine.This combination reduces the uncertainty in determining thecoal properties. Analogously, to specify the products of coalenrichment (coking�coal concentrates), a combination of twoidentifiers is used: the rank + the enrichment plant.

Establishing the interchangeability of different coalconcentrates is even more difficult, because purchas�ers in the Russian market for coking�coal concentratesgenerally do not shop for pure coals but for mixtures ofdifferent coal ranks. For example, according to 2009data, 22 out of 31 enrichment plants produce concen�trates that are coal mixtures [11]. As a rule, the samemixture includes coal ranks that belong to two or moreof the three groups (Table 1).

Thus, there are grounds to assert that the groupingof coking�coal concentrates according to the tradi�tional three groups is erroneous or at best dubious.However, this principle was used to define the submar�ket for K concentrate in a well�known decision of theFederal Antimonopoly Service [10].

We now consider some other characteristics of theRussian market for coking�coal concentrates.

(1) At present there are no state standards regardingthe rank structure of concentrates, relating either tothe ranks of the coals used in the mixture or to theirproportions. In practice, these parameters are deter�mined individually for each enrichment facility as afunction of the available coal resources and customers’contractual requirements. Experience shows that theparameters of concentrates from the same enrichmentfacility may vary widely in the course of the year. As aresult, numerous concentrates are in fact produced,but there is no list that could provide the basis for thedevelopment of a well�founded classification.

(2) Existing ranks of Russian coking coal do notpermit the production of coke of the required quality.The same applies to concentrates. Accordingly, eachcoke plant produces a coking batch (a coal blend) toproduce coke of the required quality, by combiningconcentrates of different rank in the necessary propor�tions. Therefore, the interchangeability of two compa�rable ranks (commodities) in coking batch will dependnot only on the properties of the ranks but on the prop�erties of the other concentrates in the coke plant’s

coking batch.3

(3) Readily available literature sources provide nosystematized data regarding the rank structure of anyparticular enrichment facility’s output. In Russia, atpresent, there are four independent periodical publi�cations that provide data on the extraction and pro�cessing of coking coal [12–15]. These publicationsprovide output figures for each enrichment facility, butwithout any breakdown by rank.

Thus, it is impossible to decisively select particularproduct boundaries for the concentrate market. Inwhat follows, so as to be specific, we regard all sets ofranks of Russian concentrates as forming part of a sin�gle commodity market.

The geographic boundary of a commodity marketwas defined as follows in the standard method [8]: the

3 An economic model for this effect was proposed in [11].

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BRODSKII

territory where the purchaser (or purchasers) acquireor have the economical possibility of acquiring thecommodity; no such possibility exists beyond that ter�ritory. We assume that the geographic boundary of theRussian market for coking�coal concentrates enclosesthe whole territory of the Russian Federation, as in [9].

Participants in the Concentrate Market

For the sake of clarity, we assume that the sellers inthe concentrate market are enrichment facilities,

while the purchasers are coke plants.4

The simplified diagram in Fig. 1 illustrates themain forms of relationships between participants inthe concentrate market. Such relations include com�modity, cash, and information fluxes. So as to avoidcomplicating the diagram, we only show commodityfluxes.

In Fig. 1, we have made the following assumptionsregarding the relationships:

(1) enrichment facility 1 and coke plant 1 are differ�ent legal entities within the same holding company 1;

(2) enrichment facility 2 is not part of any largerholding company;

(3) coke plant 2 is not part of any larger holdingcompany.

Since enrichment facility 1 and coke plant 1 aredifferent legal entities, the volumes and prices govern�ing concentrate deliveries from enrichment facility 1to coke plant 1 are specified by contract. These deliv�eries are planned within the holding company and areprioritized over deliveries to outside parties. This isstandard procedure; it is dictated by the need to ensurean uninterrupted production cycle within the holdingcompany.

The concentrate deliveries from enrichment facil�ity 1 to coke plant 1 are said to be intracorporate. Theexcess of concentrates produced at enrichment facility1 is sold on the free market or sent for export. To makeup any shortage in deliveries, coke plant 1 buys on thefree market or imports coal. Enrichment facility 2 sellssome of its output on the free market and exports therest. Coke plant 2 buys some of the coal it needs on thefree market and imports the rest. Thus, strictly speak�ing, the free market only covers deliveries that are notintracorporate.

Looking at Fig. 1, we can appreciate the distinctionbetween proprietary and purchased concentrates foreach coke plant. We may note the following aspects ofthe domestic concentrate market, as defined in theRussian antimonopoly law:

⎯the domestic concentrate market includes alldeliveries from any Russian enrichment facility to any

4 In reality, the list of purchasers also includes other businessesand intermediaries.

Table 1. Rank structure of the main coking�coal concen�trates from Russian enrichment facilities

Enrichment facility Coal rank Output, 103 t

Pechorskaya enrichment facility

Zh, GZhO, K 6500

Severnaya enrichment facility Zh 3400Vorkutinskaya enrichment facility

Zh 2500

Enrichment facility 2, Chere�povetsk metallurgical works

GZhO 1000

Sholokhovskaya enrichment facility

K, Zh, GZh, KS, KSN, OS, SS

1200

Severnaya enrichment facility K, KO, OS 3000Belovskaya enrichment facility K, Zh, GZh, KS,

KO, OS, GZhO5950

Ziminka enrichment facility K, KS, KSN, KO, SS

1200

Koksovaya enrichment facility K, KS, KSN, KO, SS

2000

Krasnogorskaya enrichment facility

K, KO 1200

Bachatskaya�Koksovaya enrichment facility

SS, KS, DG 3000

Abashevskaya enrichment facility

Zh, GZh 2939

Kuznetskaya enrichment facility

Zh, G, GZh 4952

Raspadskaya enrichment facility

GZh, GZhO, KO 10500

Antonovskaya enrichment facility

Zh, GZh 4700

Kuzbasskaya enrichment facility

KS, KO, OS, GZh, GZhO, GZhOox

3612

Tomusinskaya enrichment facility

KS, KO, OS 2055

Sibir enrichment facility Zh, KS, GZh, KO, OS

5600

Karo enrichment facility KS 3180Anzherskaya enrichment facility

KS 1750

Berezovskaya enrichment facility

K, KS, KO, GZh, KSN

3610

Mezhdurechenskaya enrichment facility

KS, OS 3000

Prokop’evskaya enrichment facility

T, GZh, T 1128

Shestaki enrichment facility KO, OS, GZhO 1000Rover enrichment facility SS, KS 1800Kirovskaya enrichment facility G 3000Zarechnaya enrichment facility

G 5000

Barzasskaya enrichment facility

KS, SS 1000

Shchedrukhinskaya enrichment facility

G 3500

ZSMK enrichment facility KS, KO, KSN 3500Neryungrinskii enrichment facility

K 9000

Note: The data are taken from [12].



Russian coke plant; in other words, it includes intrac�orporate deliveries;

⎯exports of concentrates are not regarded as partof the domestic concentrate market;

⎯imports of concentrates are regarded as part ofthe domestic concentrate market.

Coking�Coal Resources

The coal resources for coking include all the purecoal mined within a particular period [1–5]. Theseresources are usually characterized by several parame�ters: the rank composition of the coal, the output ofeach rank, and the mean characteristics of each rank,such as the yield of volatiles (Vd), %; the clinkeringproperties (the plastic�layer thickness y, mm); the vit�rinite reflection coefficient (Ro), %; and the vitrinitecontent (Vt), %.

Conceptually, in other words, the coal resources forcoking, which are related to the concept of pure coal,more closely resemble the market for coking coal thanthe market for coking�coal concentrates. These mar�kets differ both in terms of the commodity and interms of the market participants.

At present, practically all Russian enrichment facil�ities process their own coal stocks. This means thatthese enrichment facilities and the correspondingmines are either structural units of the same legal entityor are independent legal entities but form part of thesame holding company. Only five enrichment facilitiespurchase the coal that they process: the Anzherskaya,Shchedrukhinskaya, Karo, Prokof’evskaya, andSholokhovskaya enrichment facilities. The coal pur�chased by these enrichment facilities amounts to only~6.1% of total coking�coal extraction.

Thus, in Russia today, there is practically no marketfor coking coal. Calculations of the balance of supplyand demand in this market are of no practical interest.Therefore, in the present work, we confine our atten�tion to the balance of supply and demand in the Rus�sian market for coking�coal concentrates.

Structure of Coking�Coal Batch

The structure of the coking�coal batch for a partic�ular a specific coke plant signifies the set of character�istics of the mean proportion of a particular coal rankover a certain period (a day, week, month, quarter, oryear) in the coking batch.

Given that the characteristics of a particular rank incoal from different enrichment facilities may be verydifferent, we adopt a more precise definition here: thestructure of the coking batch for a specific coke plantconsists of the set of characteristics of the weightedmean proportion of a particular coal rank, from a spe�cific enrichment facility, over a certain period (a day,week, month, quarter, or year) in the coking batch.

To construct an economic model of the coal�batchstructure, we introduce the following notation:

k = 1, 2, 3, …, an identifier of the coke plant;f = 1, 2, 3, …, an identifier of the enrichment facility;m = 1, 2, 3, …, an identifier of the rank of pure

coal;t = 1, 2, 3, …, an identifier of the period;wk, f, m, t, the mean proportion of rank m from

enrichment facility f in batch from coke plant k overperiod t;

Wk, t, the structure of the coking batch at coke plantk over period t.

The economic model of the coal�batch structuremay then be represented in the form Wk, t = {wk, f, m, t}.It is an ordered set of characteristics, each of which isthe mean proportion of rank m from enrichment facil�ity f in batch from coke plant k over period t. The sumΣwk, f, m, t = 1 is taken over all pairs of identifiers (m, f)of the corresponding coals used in period t to producethe coking batch at coke plant k.

We may distinguish two concepts here: the actualbatch structure of coke plant k within the baselineperiod; and the planned coal�batch structure of cokeplant k in the planned period. These concepts are self�evident and require no further explanation.

In thinking of the actual and planned coal�batchstructures, we must remember that these two struc�tures in some way represent the set of technological,economic, and commercial factors that determine thebatch composition in the reference period and theplanned period.

Optimal Structure of Coking Batch

The optimal coal�batch structure (or optimal coalbatch) has been employed in numerous articles in thisjournal over the past 20 years—for example, [1–5].

Imports

ExportsHolding company 1

Free market in concentrates

Coke plant 2

Coke plant 2Enrichment Exports

Exports Exports

Imports

facility 1Enrichment

facility 1

Enrichment facility 1 Coke plant 2Coke plant 2

Fig. 1. Simplified diagram of the Russian market for cok�ing�coal concentrates.

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BRODSKII

The optimal coal batch was defined as follows in[3]: “The coal batch for the production of coke maxi�mum strength must be characterized by yield of vola�tiles Vd = 25%, clinkering properties (the plastic�layerthickness) y no less than 15 mm, vitrinite reflectioncoefficient (Ro) no less than 1.15 %, and vitrinite con�tent (Vt) greater than 60%. These values must beensured by optimal rank composition of the batch,corresponding to coal of three groups: the clinkeringgroup (GZh + Zh), the coke group (K + KO + OS),and the lean group (KS + KSN). There must be nodiscontinuities in the reflection pattern of the batch.The optimal rank composition of the batch does notdepend on the basin from which the coal was extractednor on the properties of the specific mixture compo�nents.”

There is no consensus among proponents of theoptimal coal batch regarding the proportions of differ�ent ranks in the optimal batch or the parameter valuescharacterizing the optimal batch. For example, elevenrank criteria relating to the optimal coal batch havenow been proposed, according to [5]. To take anotherexample, on a commission from the Federal Antimo�nopoly Service, the Eastern Coal�Chemistry Institutedeveloped methods for determining the value of Rus�sian coking�coal batch in 2008 and 2009. In the finalreport, the optimal coal batch is characterized not byfour parameters but by five: the additional parameter isthe free�swelling index. On the other hand, norequirements are imposed on the reflection patternsfor the batch. At meetings of the Federal Antimonop�oly Service, representatives of metallurgical enter�prises have repeatedly cast doubt on the practical util�ity of these methods.

In numerous publications, advocates of the opti�mal coal batch have asserted that the main obstacle toits practical adoption is the lack of valuable coal ranksin the coke group and clinkering group. In our view,however, its adoption is hindered by the fundamentaldeficiencies of the concept.

The main deficiency is the lack of any economicassessments. In particular, nothing has been said aboutthe economic conditions in which the additional costsof purchasing valuable coal grades would be compen�sated by a satisfactory market price for the high�qual�ity coke when some or all of the coke is sold in theopen market. The same is true of the conditions inwhich the additional cost to the metallurgical enter�prise of purchasing expensive coal would be compen�sated by the reduced blast�furnace consumption ofhigh�quality coke, when some or all of the coke pro�duced is obtained at cost price.

The disregard for economic factors is no accident.The concept of the optimal coal batch was developedduring the Soviet era, when the price of coking coalwas not an issue.

It is fair to say that the concept of optimal coalbatch has never been directly employed at Russian

enterprises (except on an experimental basis). Thismeans that specialists at any Russian coke plant, whoare extremely well informed about this concept, mustnecessarily develop their own requirements for thecoke batch at their specific plant, in a particularperiod. These requirements must take account of thecoal resources actually available, the market cost ofthe coal, the prices for coke and its byproducts, thecharacteristics of the plant’s equipment, and finallythe customer requirements on the coke. In practice,the cost/quality ratio is probably the primary consid�eration in the formulation of batch for a specific cokeplant. In this sense, the actual coal�batch structure ina particular period may be regarded, with certain stip�ulations, as the economically optimal coal batch forthe prevailing conditions.

Attempts to apply the optimal coal batch in analy�ses at the state level—such as calculation of the bal�ance of supply and demand in the Russian market forcoking�coal concentrates—reveal that, besides thetheoretical defects just noted, this approach is beset byfundamental informational difficulties.

In fact, the concept of an optimal coal batch wasdeveloped during the era of centralized economicplanning in the Soviet Union, when the Ministry ofthe Coal Industry strictly regulated the rank composi�tion of the concentrates from enrichment facilities onthe basis of command methods, despite the lack ofstate standards regarding the rank structure of the con�centrates. Under the planned coal�batch structureagreed upon by the Ministry of the Coal Industry andthe Ministry of Ferrous Metallurgy, this approachestablished a relation between the structure of concen�trate supplies to coal plants and the coal�batch struc�ture (in terms of pure coals) for each coke plant.

In market conditions, it is very difficult to establisha reliable relation between the structure of concentratedeliveries to the coke plant and the coal�batch struc�ture for each coke plant when calculating the overallcoal resources for the Russian coke industry. This rela�tion is established very approximately, most often byexpert assessment on the basis of the actual or pre�dicted data regarding the rank structure of theextracted coal and the structure of coal deliveries tothe enrichment facility.

Finally, calculations of the overall coal resourcesfor the Russian coke industry on the basis of the opti�mal coal batch are greatly undermined by the deficien�cies of State Standard GOST 25543–88 in terms of theconsiderable parameter spread in the definitions ofparticular ranks. This has been noted by practically allproponents of the optimal�batch approach.

Balance of Supply and Demand in the Market for Coking�Coal Concentrates

On the basis of Fig. 2, we may conceptually refinethe balance of supply and demand in the market for



coking�coal concentrates and select a method for cal�culating that balance.

All the parameter values refer to a single period: thereference (baseline), current, or planned (predicted)period. We denote by CP the volume of coke purchasesby other buyers (nonferrous metallurgy, the foodindustry, etc.).

In Fig. 2, for the sake of clarity, the arrows illustrat�ing the formation of demand are in the opposite direc�tion to the fluxes of coal and coke�plant products.Using notation in Fig. 2, we may write the balance ofsupply and demand as

Here B is the balance of supply and demand in themarket for coking�coal concentrates, 103 t. In thepresent work, so as to be specific, we calculate this bal�ance for the concentrate market that includes all ranks(types) of concentrates.

B S D–a surplus if S D,>

a sortage if S D.<⎩⎨⎧

= =

BASIC PRINCIPLES IN CALCULATING THE BALANCE OF SUPPLY AND DEMAND

In Fig. 3, we show the simplest configuration ofmaterial fluxes between the four technological pro�cesses associated with concentrate production anduse. To simplify the notation, we assume that eachmine extracts coal of only a single rank, while eachenrichment facility produces concentrate of only asingle rank. Then, instead of denoting each character�istic with three subscripts (producer name/code +product name/code + consumer name/code), we mayadopt a simpler notation (producer name/code + con�sumer name/code). We adopt the following notationin Fig. 3:

Dh, f, the supply of coal (measured in 103 t, through�out) from mine h (h = 1, 2) to enrichment facility f(f = 1, 2);

Qf, k, the supply of concentrate from enrichmentfacility f (f = 1, 2) to coke plant k (k = 1);

Sk, z, the supply of coke k (k = 1) to metallurgicalenterprise z (z = 1);

Coal

extraction

Enrichment

facilitiesMarket Coke

plantsHot�metalproduction

Concentrateexports

Concentrateimports

Cokeexports

Other cokepurchasers

S D

CE CI CoE OP

Fig. 2. Supply and demand in the Russian market for coking�coal concentrates, 103 t: S, supply; D, demand; CE, volume of con�centrate exports; CI, volume of concentrate imports; CoE, volume of coke exports; OP, coke supplies to other purchasers.

Mine 1

h = 1

Enrichment

f = 1

Mine 2

h = 1 f = 1

Coke

k = 1

Metallurgical

z = 1

HMz = 1

Dh = 1, f = 1 Qf = 1, k= 1

Dh = 2, f= 1

Dh = 2, f= 2

Dh = 1, f= 1

Qf = 2, k= 1

Sk = 1

facility 1

Enrichmentfacility 2

plant 1 enterprise 1

Fig. 3. The simplest possible configuration of four technological processes associated with the production and use of coking�coalconcentrates.

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BRODSKII

HMz, the production of hot metal at metallurgicalenterprise z (z = 1).

On the basis of Fig. 3, we may clearly and conciselyoutline the basic principles in calculating the balanceof supply and demand, as follows.

(1) Retention of the same proportions between sys�tem components in the planned period as in the baselineperiod. In Fig. 3, we distinguish between the follow�ing proportions: the proportions of coal suppliesfrom each mine to different enrichment facilities; theproportions of the concentrate produced at eachenrichment facility; the proportions of concentratesupplies from each enrichment facility to the cokeplant; and the proportions of the coal batch at thecoke plant.

This principle means that each set of proportionsmust be the same in the planned period as in the base�line period. This means that, in the first approxima�tion, we may take account of the set of factors thataffect the structure of the relations between the fourprocesses (Fig. 3).

(2) Taking account of constraints on output in theplanned period. For each mine, the total output of coal(summed over all ranks) in the planned period cannotbe greater than its productive capacity in the plannedperiod multiplied by its level of use. For each enrich�ment facility, the total processing of coal (over allranks) in the planned period cannot be larger than itsproductive capacity in the planned period multipliedby its level of use.

For each coke plant, the coke production in theplanned period cannot be larger than its productivecapacity in the planned period multiplied by its level ofuse.

For each metallurgical enterprise, the hot�metalproduction in the planned period cannot be largerthan its productive capacity in the planned periodmultiplied by its level of use.

(3) Levels of supply and demand in the concentratemarket during the planned period. The level of supply inthe concentrate market is assumed to be constant dur�ing the planned period. It is calculated from the spec�ified production capacities of the mines and enrich�ment facilities with the specified proportions in thebaseline period.

The demand in the concentrate market within theplanned period is variable and is calculated as a func�tion of the hot�metal output, taking account of thespecified productive capacities of the coke plants andblast furnaces, with the specified proportions in thebaseline period. This approach has two benefits: (1) itagrees with the goal of securing coke for Russian met�allurgical enterprises; (2) it permits study of thechanging balance in the concentrate market as a func�tion of the hot�metal output at Russian metallurgicalenterprises.

(4) Selection of the baseline period. We know thatone of the main requirements for correct planning isthat the list of enterprises operating in the baselineperiod must be the same as in the planned period. Ineconomic calculations, this is ensured either by theappropriate choice of baseline period or by reducingthe baseline conditions to the conditions in theplanned period.

In selecting the baseline for calculating the balanceof supply and demand in the concentrate market in2010, three periods may be distinguished: January–April 2010, when concentrates based on Raspadskayacoal were supplied to the market; May–June 2010,when the concentrate market was in a transitionalstate on account of the accident at the Raspadskayamine; and July 2010, when new relations between sell�ers and purchasers were established in the concentrate

market.5

Thus, the data for July 2010 may be adopted as thebaseline for calculations of the balance in the periodfrom July to the end of 2010.

ALGORITHM FOR CALCULATING THE BALANCE

In Fig. 4, we present an enlarged block diagram ofthe algorithm for calculating the balance of supply anddemand in the concentrate market. This algorithmconsists of two main modules: (1) calculation of thebaseline characteristics; (2) calculation of the charac�teristics in the planned period.

Module 1 consists of four submodules.

Submodule 1.1 (calculation of the mine character�istics) includes the calculation of the baseline values ofthe following characteristics for each mine: coal out�put (summed over all ranks); the mean (over the base�line period) level of use of the annual mean productivecapacity; the mean (over the baseline period) propor�tions of coal supplies to different enrichment facilities.The initial information for the calculation consists ofthe annual mean productive capacity of the mine andthe supplies of coal to different enrichment facilities inthe baseline period.

Submodule 1.2 (calculating the characteristics ofthe enrichment facilities) includes the calculation ofthe following baseline characteristics for each enrich�ment facility: coal purchases (summed for all ranks);the mean rank structure of the coal; the mean level ofuse of the annual mean productive capacity (in termsof coal); the mean concentrate yield; the mean struc�ture of concentrate supplies to different coke plants.

The initial information for the calculation consistsof the annual mean productive capacity of the enrich�ment facility, the supplies of coal to the enrichment

5 Information provided by specialists at OOO Torgovyi DomMechel.



facility, and the concentrate supplies to different cokeplants in the baseline period.

Submodule 1.3 (calculating the coke�plant charac�teristics) includes calculations of the following char�acteristics for each coke plant in the baseline period:the purchases of concentrate of different rank fromdifferent enrichment facilities (summed over all ranksfor the different enrichment facilities); the meanbreakdown of concentrate supplies to the coke plants;the mean level of use of the annual mean productivecapacity of the coke plants; the mean coking coeffi�cient; and the mean breakdown of coke supplies to dif�ferent metallurgical enterprises.

The initial information for the calculation consistsof the annual mean productive capacity of the cokeplant, the supplies of concentrate of different rankfrom different enrichment facilities to the coke plant,and the supplies of coke to different metallurgicalenterprises in the baseline period.

Submodule 1.4 (calculating the characteristics ofthe metallurgical enterprises) includes calculations ofthe following characteristics for each metallurgicalenterprise in the baseline period: the total purchases ofcoke from different plants; the mean (over the baselineperiod) breakdown of coke purchases from differentplants for the metallurgical enterprise; the mean (overthe baseline period) level of use of the annual meanproductive capacity (in terms of hot metal); and themean (over the baseline period) coke consumption inthe production of 1 t of hot metal.

The initial information for the calculation consistsof the coke purchases from different plants, the outputof hot metal, and annual mean productive capacity inthe baseline period.

All the calculations in module 1 rely on familiarformulas, which will not be presented here.

Module 2 consists of ten submodules.

Submodule 2.1 involves calculating the maximumpossible volume of coal processing (Df, PC) at each

enrichment facility in the planned period6

Df, PC = PCf, plan(Tpl/12), (1)

where PCf, plan is the annual mean productive capacityof enrichment facility f in the planned period, 103 t; Tpl

is the length of the planned period, months.

Table 2 presents a sample calculation based onEq. (1) for the system in Fig. 3.

Submodule 2.2 (equalizing the indices of variationin coal processing at different enrichment facilities)involves calculation of the following characteristics foreach enrichment facility, so as to maintain the baseline

6 The computational algorithm in Fig. 4 includes three successivecalculations (recalculations) of the volume of coal processing ateach enrichment facility in the planned period and correspond�ingly we write Df, PC, Df, ord, and Df, pl.

proportions of the coal batch at each enrichment facil�ity during the planned period:

⎯the index of increase (decrease) in coal process�ing at each enrichment facility in the planned periodrelative to the baseline

Rf = (Df, max/Tpl)(Df, base/Tbase), (2)

where Df, base is the actual coal processing at enrich�ment facility f in the baseline period, 103 t; Tbase is theduration of the baseline period, months;

⎯the minimum index of increase (decrease) incoal processing at the enrichment facilities in theplanned period relative to the baseline

Rf, min = min(Rf = 1; Rf = 2; …). (3)

Table 3 presents a sample calculation on the basis ofEqs. (2) and (3) for the system in Fig. 3.

Begin

1. Calculation of the baseline characteristics

of the minecharacteristics

1.1. Calculation 1.2. Calculating 1.3. Calculation 1.4. Calculating thethe characteristics of the coke�plant characteristics of theof the enrichment characteristics metallurgical

2. Calculation of the characteristics in the planned period

2.1. Calculating the maximum possible coal processing at each enrichment facility

2.2. Equalizing the indices of variation in coal processing at different enrichment facilities

2.3. Calculation of the interrelated coal orders from enrichment

2.4. Calculation of coal extraction, taking account of the orders fromenrichment facilities and the constraints on the productive capacity

2.5. Equalizing the indices of increase (decrease) in coal extraction at different mines

2.6. Calculation of the interrelated coal supplies to enrichment facilities

2.7. Calculation of the concentrate supply

2.8. Calculation of the characteristics of metallurgical enterprises

2.9. Calculation of the coke�plant characteristics

2.10. Calculation of the balance of supply and demand in the

End

facilities enterprises

facilities

concentrate market

of the mines

Fig. 4. Enlarged block diagram of the algorithm for calcu�lating the balance of supply and demand in the concentratemarket.

424


BRODSKII

Submodule 2.3 involves calculation of the coal pro�cessing at each enrichment facility in the plannedperiod on the basis of the minimum index in Eq. (3)

Df, ord = Rf, minDf, base (4)

and calculation of the orders for coal from differentmines on the basis of the coal processing Df, ord and the

proportions of coal supplies in the baseline period7

Dh, f, ord = Df, ordw(Df, base). (5)

Here Dh, f, ord denotes the orders from enrichmentfacility f for coal from mine h in the planned period;w(Dh, f, ord) is the proportion of coal supplies from mineh to enrichment facility f in the baseline period.


In submodule 2.4, the coal extraction is calculated,taking account of the orders from different enrich�ment facilities and the constraints on the productivecapacity of the mines on the basis of Eqs. (4) and (5).This involves the calculation of the following charac�teristics for each mine:

⎯the total orders from different enrichment facili�

ties for coal extracted by mine8 h

Dh, ord = Σ(Dh, f, ord), (6)

where the orders from all the enrichment facilities foreach batch are summed;

⎯the coal extraction at mine h in the plannedperiod, taking account of the total coal orders from theenrichment facilities and the constraints on the mine’sproductive capacity

Dh = min(Dh, ord; Dh, PC). (7)

Here Dh, PC is the coal extraction at mine h in theplanned period calculated from the productive capacity

Dh = PCh(Tpl/12), (8)

where Dh is the annual mean productive capacity ofmine h in the planned period.


Submodule 2.5, which corresponds to equalizationof the indices of increase (decrease) in coal extractionat different mines, involves the calculation of minecharacteristics that permit the retention of the baselineproportions of coal supplies from each mine to differ�ent enrichment facilities in the planned period:

7 The computational algorithm in Fig. 4 includes two successivecalculations (recalculations) of the orders from enrichmentfacility f for coal from mine h in the planned period and corre�spondingly we write Dh, f, ord and Dh, f, pl.

8 The computational algorithm in Fig. 4 includes four successivecalculations (recalculations) of the total coal extraction at mineh in the planned period and correspondingly we write Dh, ord,Dh, PC, Dh, rec, and Dh, pl.

Table 2. Calculating the maximum possible coal processingat an enrichment facility

Characteristic Notation

Enrichment facility

f = 1 f = 2

Annual mean productive capacity in the planned period, 103 t

PCf, plan 2000 2000

Duration of planned period, months

Tpl 1 1

Maximum possible volume of coal processing in the planned period, 103 t

Df, PC 166.7 166.7

Table 3. Equalizing the indices of change in the coal pro�cessing at different enrichment facilities


Enrichment facility

f = 1 f = 2

Duration of planned period, months Tpl 1 1

Maximum possible volume of coal processing in the planned period, 103 t

Df, PC 166.7 166.7

Duration of baseline period, months Tbase 1 1

Actual coal processing in the baseline period, 103 t

Df, base 90.0 130.0

Index of increase (decrease) in coal processing at enrichment facility

Rf 1.852 1.282

Minimum index of increase (decrease) in coal processing at enrichment facility

Rf, min 1.282 1.282

Table 4. Calculating the coal orders from enrichment facil�ities in the planned period


Enrichment facility 1

f = 1 f = 2

Coal processing in baseline period, 103 t

Df, base 90.0 130.0

Minimum index of increase (decrease) in coal processing at the enrichment facilities

Rf, min 1.282 1.282

Demand calculated from mini�mum index, 103 t

Df, ord 115.4 166.7

Coal purchases from mine 1 as a proportion of total coal purchases

w(Dh, f) 0.44 0.62

Coal purchases from mine 2 as a proportion of total coal purchases

w(Dh, f) 0.56 0.38

Orders for coal from mine 1, 103 t Dh, f, ord 51.3 102.6

Orders for coal from mine 2, 103 t Dh, f, ord 64.1 64.1



⎯the index of change in coal extraction at mine h

Eh = Dh, rec/Dh, base, (9)

where Dh, base is the baseline coal extraction at mine h;

⎯the minimum index of change in coal extractionat the mines

Eh, min = min(Eh = 1; Eh = 2; …). (10)


Submodule 2.6 (calculation of the interrelated coalsupplies to enrichment facilities) involves calculationof the coal extraction for each mine in the plannedperiod (Table 5, row 5) and the coal supplies to differ�ent enrichment facilities in the planned periodaccording to the baseline proportions, by means of thefamiliar formulas, on the basis of the minimum indexof increase (decrease) in coal extraction in Eq. (10).

Submodule 2.7 (calculation of the concentratesupply) involves the calculation of the following char�acteristics, by means of familiar formulas, on the basisof the coal supplies calculated in submodule 2.6:

⎯the volume of coal in the planned period;⎯the concentrate production corresponding to the

specified concentrate yield in the planned period;⎯the concentrate supply to different coke plants in

the planned period according to the baseline propor�tions.

Submodule 2.8 (calculation of the characteristicsof metallurgical enterprises) involves the calculation ofthe following characteristics for each metallurgicalenterprise from the specified hot�metal production inthe planned year and the specified coke consumptionper 1 t of hot metal: Sz, ord, the coke purchases requiredfor metallurgical enterprise z (total), 103 t; Sk, z, ord, therequired purchases (orders) for coke from differentplants at metallurgical enterprise z in accordance withthe baseline structure of coke supplies to the givenmetallurgical enterprise. The calculations are based onfamiliar formulas, which are not given here.

Submodule 2.9 (calculation of the characteristicsof coke plants) involves the calculation of the follow�ing characteristics for each coke plant, taking accountof the coke purchases in submodule 2.8 and the speci�fied productive capacity of the coke plant in theplanned period:

⎯the coke production corresponding to the pro�ductive capacity of the coke plant

Sk, PC = PCk(Tpl/12), (11)

where PCk is the annual mean productive capacity ofcoke plant k in the planned period, 103 t/yr;

⎯the coke production taking account of the totalorders to the enrichment facilities and the meanannual productive capacity in the planned period

Sk, pl = min(Sk, ord; Sk, PC), (12)

where Sk, ord is the total volume of orders from differentmetallurgical enterprises for coke from plant k

Sk, ord = ΣSk, z, ord. (13)

In Eq. (13), for each coke plant, the summation istaken over all the enterprises that purchased coke fromthat plant in the baseline period;

⎯the quantity of coal batch required to producethe coke in Eq. (12)

Qk, dem = Sk, plUk, pl, (14)

where Uk, pl is the weighted mean (over the plannedperiod) coking coefficient of coke plant k;

⎯the demand (orders) from coke plant k for con�centrate from enrichment facility f

Qf, k, dem = Qk, plw(Qf, k, base), (15)

Table 5. Calculating the maximum coal processing atenrichment facilities

Characteristic NotationMine

h= 1 h = 2

Total coal orders from different enrichment facilities, 103 t

Dh, ord 153.8 128.2

Annual mean productive capacity of mines in planned period, 103 t

PCh 1700 1900


Tpl 1 1

Coal extraction calculated from productive capacity, 103 t

Dh, PC 141.7 158.3

Coal extraction at mine in planned period, taking account of the coal orders from enrichment facilities and the constraints on the productive capacity, 103 t

Dh, rec 141.7 128.2

Table 6. Equalizing the indices of increase (decrease) incoal extraction at different mines

Characteristic NotationMine

h= 1 h = 2

Coal extraction in baseline period, 103 t

Dh, base 120.0 100.0

Coal extraction at mine in planned period, taking account of total coal orders from enrich�ment facilities and the constraints on the productive capacity, 103 t

Dh, rec 141.7 128.2

Index of increase (decrease) in coal extraction

Eh 1.181 1.282

Monimum index of increase (decrease) in coal extraction

Eh, min 1.181 1.181

Coal extraction in planned period, 103 t

Dh, pl 141.7 118.1

426


BRODSKII

where w(Qf, k, base) denotes the purchases (orders) ofconcentrate from enrichment facility f as a proportionof the total concentrate purchases of coke plant k inthe baseline period.

Table 7 presents a sample calculation on the basis ofEqs. (11)–(15) for the system in Fig. 3.

Submodule 2.10 (calculation of the balance of sup�ply and demand in the concentrate market) includesthe calculation of the following characteristics:

⎯the concentrate supply in the planned period

Spl = ΣQf, k, supl, (16)

where the summation is taken over data for all theenrichment facilities that were active in the concen�trate market in the baseline period;

⎯the demand for concentrate in the plannedperiod

Dpl = ΣQf, k, dem, (17)

where the summation is taken over data for all the cokeplants that made purchases in the concentrate marketin the baseline period;

⎯the balance of supply and demand in the con�centrate market in the planned period

Bpl = Spl – Dpl. (18)

Table 8 presents a sample calculation on the basis ofEqs. (16)–(18) for the system in Fig. 3.

SIMPLIFYING ASSUMPTIONS OF THE MODEL

The algorithm in Fig. 4 for calculating the balanceof supply and demand is an economic model and, likeany model, rests on simplifying assumptions.

In our analysis of these assumptions, our goal is toestablish their validity, which determines the validity ofthe final model (algorithm), and to find means ofimproving the model by refining the assumptions.

We now consider the basic simplifying assumptionsin sequence.

(1) To permit a clear and compact account of themethod, the following simplifying assumptions areadopted:

⎯each mine extracts only a single rank of coal;⎯each enrichment facility produces concentrate

of only a single rank;⎯each coke plant supplies coke to only one metal�

lurgical enterprise;⎯the reserves of coal and products at each enter�

prise (mine, enrichment facility, coke plant, metallur�gical enterprise) is the same at the beginning and endof the period considered;

⎯concentrate exports and imports are zero;⎯coke exports are zero;⎯coke supplies from outside ferrous metallurgy

(from nonferrous metallurgy, the food industry, etc.)are zero.

In general, these assumptions clearly do not corre�spond to reality. However, they may be readily elimi�nated by the introduction of appropriate characteris�tics and equations in the model.

(2) The model makes two simplifying assumptionsregarding the rank structure of the coal at each enrich�ment facility and the rank structure of the concen�trates produced from this coal: the rank structure of

Table 7. Calculations of coke�plant characteristics inplanned period

Characteristic Notation Baseline Planned period

Coke supplies to metallurgi�cal enterprise 1, 103 t

Sk, z, ord 127.3 135.0

Annual productive capacity, 103 t

PCk 1900.0 3000.0


Tpl 1 1

Coke production at the pro�ductive capacity, 103 t

Sk, PC 158.3 250.0

Coke production, taking account of orders and the productive capacity, 103 t

Sk, pl 127.3 135.0

Coking coefficient (base�line), t/t

Uk 1.3 1.3

Concentrate demand, 103 t Qk, dem 163.0 172.8

Concentrate purchases from enrichment facility 1 as a proportion of total concen�trate purchases (baseline)

w(Qf, k, base) 0.44 0.44

Concentrate purchases from enrichment facility 2 as a proportion of total concen�trate purchases (baseline)

w(Qf, k, base) 0.56 0.56

Demand for concentrate from enrichment facility 1, 103 t

Qf, k, dem 72.0 72.0

Demand for concentrate from enrichment facility 2, 103 t

Qf, k, dem 91.0 96.5

Table 8. Calculating the balance of supply and demand inthe concentrate market

Characteristic Notation Baseline Planned period

Concentrate supply, 103 t S 163.0 192.4

Concentrate demand, 103 t D 163.0 172.8

Balance of supply and demand in the concentrate market, 103 t

B 0.0 19.6



the concentrates is the same as that of the coal; and therank structure of the coal fluctuates only slightly dur�ing the baseline period and planned period.

Two further simplifying assumptions are maderegarding the rank structure of the concentrates pur�chased by the coke plant and the rank structure of thecoal batch used to produce the concentrates: the rankstructure of the coking batch is the same as the rankstructure of the purchased concentrates; the rank struc�ture of the purchased concentrates fluctuates onlyslightly during the baseline period and planned period.

These assumptions are not always valid. For exam�ple, in the course of a year, the rank structure of thecoal and hence the rank structure of the concentratefor a particular enrichment facility may easily changeseveralfold. The validity of the assumptions is lesslikely when considering longer periods. Conversely,when considering shorter periods, their validity ismore likely.

(3) In the baseline period, balance of supply anddemand in the concentrate market is assumed. This isvalid in the sense that the supply will be strictly equalto the demand in the baseline period. However, wecannot interpret this to mean that, in the baselineperiod, all the participants in the concentrate marketare able to buy or sell concentrates of the requiredrank, in the required quantities.

CONCLUSIONS

We have shown that assessment of Russian coking�coal resources on the basis of the optimal coking�coalbatch is ill�suited to Russia’s current market economy.We have proposed a baseline�based method for calcu�lating the balance of supply and demand in the marketfor coking�coal concentrates. In a market economy,calculation of the balance by means of a baselineallows us to take account of both economic factors andthe relations between market participants, at least inthe first approximation.

ACKNOWLEDGMENTS

We thank V.S. Zagainov, B.P. Kiselev,Ya.B. Kukolev, Yu.A. Zolotukhin, and P.P. Kharkhar�din for detailed and constructive discussions of organi�zational and methodological issues associated withassessing the state of the coal resources at Russiancoke plants.

REFERENCES

1. Kiselev, B.P. and Leushin, V.A., Russia’s Coking�CoalResources. 1. A Retrospective, Koks Khim., 1999,no. 11, pp. 2–9.

2. Kiselev, B.P., Russia’s Coking�Coal Resources, KoksKhim., 2001, no. 3, pp. 18–26.

3. Kiselev, B.P. and Stankevich, A.S., Assessing Coking�Coal Resources, Koks Khim., 2006, no. 3, pp. 7–15.

4. Zolotukhin, Yu.A., Assessing Coking�Coal Resources.3. Rank Optimality of Batch Composition, Koks Khim.,2008, no. 12, pp. 2–10.

5. Zolotukhin, Yu.A., Assessing Coking�Coal Resources.4. Theory of Batch Formulation by Rank, Koks Khim.,2010, no. 5, pp. 6–12.

6. Nalimov, V.V., Veroyatnostnaya model’ yazyka. O soot�noshenii estestvennykh i iskusstvennykh yazykov (Proba�bilistic Model of Language: The Relations betweenNatural and Artificial Languages), Moscow: Nauka,1979.

7. Federal Law on the Protection of Competition, 2006,no. 135�F3.

8. Sequence of Analysis of the State of Competition in aCommodity Market: Appendix to Order 220, FAS Rossii,2010.

9. Analiz sostoyaniya conkurentnoi sredy v sfere koksuyush�chikhsya uglei (Analysis of the State of Competition inCoking Coals), http://www.fas.gov.ru/competi�tion/goods/analisys/a_4851.shtml.

10. Ruling on Item 1�10/51–08: Letter AG/20956, FASRossii, 2008.

11. Brodskii, V.A. and Brodskaya, E.V., Calculating theRelative Value of Coals in Improving Price Assign�ments, Koks Khim., 2009, no. 3, pp. 7–12.

12. Rynok ryadovykh uglei i kontsentratov dlya nuzhd koks�ovaniya. Sovremennoe sostoyanie i tendentsii razvitiya.Informatsionno�analiticheskii obzor (Markets for Cok�ing Coal and Concentrates: Current State and Trends:Analytical Review), Moscow: Rosinformugol’, 2010.

13. Rossiiskii rynok proizvodstva i potrebleniya koksuyush�chikhsya uglei: Inform. byul. (Russian Markets for Cok�ing�Coal Production and Consumption: InformationBulletin), OOO RasMin, FGUP VUKhIN.

14. Ugol’naya otrasl’ toplivo�energeticheskogo kompleksaRossii (Coal in Russia’s Energy System), Moscow: Ros�informugol’, 2010, vol. 1.

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Documents

Balance of supply and demand in the Russian market for coking-coal concentrates