China Shenhua Energy

Higher costs erode China Shenhua Energy's third-quarter profit

Mainland coal producer also blames lower selling prices for 4pc drop in quarter's income

PUBLISHED : Saturday, 27 October, 2012, 12:00am
UPDATED : Saturday, 27 October, 2012, 3:21am

China Shenhua Energy, the listed unit of the nation's largest coal producer Shenhua Group, posted a 4 per cent drop in third-quarter net profit, as lower coal selling prices and higher production costs offset increased sales.

Net profit was 12.1 billion yuan (HK$15 billion), compared with 12.6 billion yuan in the same period last year. For the first nine months, profit grew 9.1 per cent to 38.85 billion yuan.

Sales volume in the nine months rose 15 per cent, while the average selling price fell 2.3 per cent and production cost per tonne grew 9.6 per cent.

Meanwhile, Yanzhou Coal Mining, the listed unit of the nation's fourth-largest coal producer Yankuang Group, made a net loss of 79.6 million yuan in the third quarter, against a profit of 1.08 billion yuan a year earlier.

Revenue rose to 12.9 billion yuan from 12.1 billion yuan.

Net profit in the nine months to September fell 21 per cent year on year to 4.83 billion yuan, despite revenue surging 26 per cent to 42.1 billion yuan.

The third-quarter loss was due mainly to a 22 per cent rise in operating cost to 13 billion yuan. A 19 per cent drop in average selling price to 548 yuan a tonne offset a 13.4 per cent rise in processed coal output to 15.6 million tonnes, resulting in flat revenue.

A Citi research report earlier this month predicted Yanzhou would struggle to break even in the third quarter.

It also said the company was unlikely to see improvement in the fourth quarter because of its high exposure to coal used to smelt steel, which saw sharper price declines compared to power-station coal.

"We expect coal prices to move sideways from now until next year's first quarter, and may seasonally pick up in the second quarter," analyst Scarlett Chen said in the report.

Chen forecast power-station coal's average price to see an 8 per cent decline next year, sharper than a 6 per cent fall of metallurgical coal.