Bloomberg reported that China Shenhua Energy Co the nation’s biggest coal producer may post a record profit for a second year in 2009 as government efforts to boost economic growth increase demand for the fuel.
China Shenhua Energy Co said net income rose 29% to CNY 26.6 billion last year. Profit may increase to CNY 30 billion in 2009.
Mr Donovan Huang an energy analyst at Nomura Securities in Shanghai said that the Chinese government announced a CNY 4 trillion plan in November to boost growth in the world’s third-biggest economy. Shenhua’s ports, railways and power generation businesses should also help it weather the slowdown. He said that Shenhua is well placed because its business model is more defensive.”
Coal prices at Qinhuangdao, a domestic benchmark, reached a record CNY 1,080 per tonne in July and have since declined 48% to an average CNY 557.5 per tonne on slowing demand. China’s economy expanded 6.8% in the fourth quarter, the slowest pace in seven years.
Mr Martin Wang an energy analyst at Guotai Junan Securities Hong Kong Ltd said “The market is bullish about coal and other commodity stocks because it believes China’s economic stimulus package is beginning to work. Power demand appears to be picking up.”
According to the company’s 2007 annual report Shenhua held recoverable coal reserves of 7.3 billion tonnes. The company’s reserves are second only to Peabody Energy Corp the world’s biggest publicly traded coal producer.
1. Power Demand
Shenhua’s shares have risen 6% in Hong Kong this year, compared with a 6.5% decline in the benchmark Hang Seng Index. Twenty-two out of 27 analysts have a buy rating on the shares in a survey compiled by Bloomberg.
Power demand rose for the first time in four months in February and central bank Governor Mr Zhou Xiaochuan said on March 26th that economic indicators are pointing to a recovery. Coal is used to produce about 80% of the country’s electricity.
Mr Li Yizhong the minister for industry and information technology, said electricity consumption climbed 4% last month after companies in the cement and petrochemical industries increased production.
Mr Zhang Xiwu Chairman said last week Shenhua is confident it can overcome challenges posed by the global financial crisis in the country’s most difficult year.
2. Fourth-Quarter Slump
According to Bloomberg calculations made by subtracting earnings for the first nine months from full year figures Q4 profit tumbled 20% in the final three months of last year to CNY 3.9 billion. The drop in quarterly earnings is Shenhua’s first since the company’s initial share sale in Shanghai in October 2007. Spokesman Mr Huang Qing declined to comment on the figure.
The state-controlled miner expanded output by 18% last year to benefit from soaring energy prices in the first six months. Earnings and prices slumped in the second half as the global economy sank into recession. The company’s full year profit was below the median estimate of CNY 29 billion in a Bloomberg survey of 26 analysts. The shares fell 5.7% to close at HKD 17.38 in Hong Kong the biggest drop since March 2nd.
Shenhua said Shenhua will cut spending by 16% to CNY 29.9 billion this year on slower demand compared with 2008. Coal production may rise 6% to 197 million tonnes compared with an 18% gain a year earlier. Sales may decline 5% to 220 million tonnes and power generation may drop to 94.1 million megawatt-hours.
3. Mongolian Mine
Shenhua said the coal producer made real progress in its overseas development strategy. In October 2008, the company won a bid for a mining lease in Australia’s Watermark exploration area, taking its first step in developing coal resources overseas.
Mr Ling Wen President said the company is among 10 bidders for Mongolia’s Tavan Tolgoi coal mine. Shenhua and about nine other international companies have submitted proposals to the Mongolian government, which has appointed advisers on a possible sale of the mine.
According to the annual report the company has also invested in a coal and power project in the South Sumatra province of Indonesia, comprising a mine with an annual capacity 2.3 million tonnes and a 300 megawatt coal fired power plant.
Mr Zhang Xiwu Chairman said in a statement that Shenhua may also consider acquiring a coal to liquids project from its parent Shenhua Group Corp. He said that this year, Shenhua Energy may pursue domestic and overseas acquisitions, focusing on large scale integrated coal fields. At the same time, the miner is seeking to control costs, develop high end products, boost capacity, and strengthen risk management.
Shenhua said in the annual report investment in coal projects will fall 35% to CNY 9.48 billion and spending on power plants will decline 33% to CNY 11.96 billion. Investment in railways will triple to CNY 7.56 billion.
(Sourced from Bloomberg)
