High coal prices eating into profit, says Datang
Datang International Power Generation, the flagship listed vehicle of power producer China Datang Group, is warning that high coal prices will continue in the second half of this year with 'a great impact on power generation and supply'.
It said the price of coal was the key element determining its profitability, with fuel costs accounting for 63.6 per cent of total costs, up from 56.7 per cent in the same period last year. 'In the second quarter, coal prices soared and have stayed high,' said chairman Liu Shunda.
It expects coal prices to ease slightly until the end of next month, before rising in the fourth quarter as cooler weather in northern China lifts demand for coal.
Thermal power made up 86.8 per cent of Datang Power's capacity in the first half, down 1.4 per cent from the end of last year. Hydro power accounted for 11.2 per cent and wind power 2 per cent.
In the first half, the thermal power business remained the main profit driver for Datang Power, although its margins suffered because of high coal prices. Earnings before taxes from thermal power were 897 million yuan (HK$1.09 billion) in the first half, down 43 per cent year on year.
Datang Power has tried diversifying into coal-based chemical production as a potential profit booster and a coal-to-polypropylene project in Duolun county, Inner Mongolia, was planned to come on stream last year. It said the project would be operational before the end of this year.
The company's revenue in the six months ended June reached 33.3 billion yuan, up 15 per cent from 28.95 billion yuan for the same period last year, boosted by the country's rapid economic growth.
The company's first-half electricity output rose 19 per cent year on year to 96.16 billion kilowatt hours.
Datang Power, the second-largest listed Chinese power producer by capacity after Huaneng Power International, said it would invest 1.8 billion yuan in Mengji Railway, in which it holds a 9 per cent share. The money would be used to construct a 525 kilometre railway line to ship outbound coal from the Ordos region of Inner Mongolia.
Shares of Datang Power closed at HK$2.08 on Monday, rising 0.48 per cent.
The rise in net profit to 931.7 million yuan for the six months ended June from 911.9 million yuan in the same period last year