Summer Rally

Last week was very good for investors. The WIG20 index gained 3.61 percent and reached 2,460.96 points. Even bad news which still came from Hungary (where the government could not make a public debt agreement with the IMF) did not stop the strong appreciation of the Polish capital market (and other markets). The significant improvement was mainly driven by a relatively good sentiment prevailing mainly on the leading markets, especially in the euroland and the USA. The wave of optimism this July may be attributed to the typical summer bull market also known as summer rally. Threats to the continuation of the uptrend include mainly the uncertain macroeconomic situation of Hungary and Romania.
 
Foreign stocks listed on the Warsaw Stock Exchange performed less well than the broad market. The Czech stock CEZ, which participates in the WIG20 index, rose by “only” 1.71 percent. Another Czech corporation, NWR, performed much better and jumped 5.82 percent. The strong rise was driven by announced further coal price rises, discussed in the second part of this commentary. The third Czech stock, PEGAS, was not traded last week at all. Trading was also low in ACS and BVD, which only traded on Friday, and OEG, only trading on Wednesday.

The oil price reached a relatively high level of US$ 79 per barrel last week. In this context, the smaller appreciation of the oil company MOL (up by 0.81 percent) may be explained by the increasingly complex situation among its shareholders (potential conflict with Surgutneftegaz) as well as Hungary’s macroeconomic situation. Foreign developer stocks performed less well relative to the broad market. Only Reinhold rose dynamically by 5.83 percent. Warimpex’s return was much lower as its market capitalisation grew by almost 1 percent.

Ukrainian stocks were in close correlation and performed relatively well last week: AST rose 2.59 percent and KER rose 2.48 percent.

Good Outlook

New World Resources signed new, very advantageous contracts for supplies of coking coal and coke in July-September 2010. The foreign holding estimates that the average price of coking coal will be EUR 158 per ton in Q3 2010, up by ca. 17 percent quarter on quarter. The average price of coke has been set at EUR 362 per ton in Q3 2010, up by 42 percent quarter on quarter. This is very good news for the company’s shareholders because the share of coking coal is ca. 20% of the total sales volume. NWR also said that ca. 80 percent of the sales of coking coal are based on the Japanese Fiscal Year (JPY). Coke is sold under quarterly contracts and thermal coal (price EUR 65 per ton) under annual contracts. The Czech coal corporation is planning to present its H1 2010 results on 26 August 2010. The key one-off factors impacting NWR’s financial results in Q2 2010 include the sale of NWR Energy to Dalkia Ceska Republika at EUR 131 million in June. In addition to increased prices of NWR products, the corporation has completed the development of a modern coking battery in the subsidiary OKK Koksovny at the turn of May and June 2010.

      Rafał Salwa
Independent Analyst