China Shenhua Energy

China Shenhua Energy foresees tepid coal demand in second half

PUBLISHED : Saturday, 24 August, 2013, 12:00am
UPDATED : Saturday, 24 August, 2013, 4:23am

China Shenhua Energy, the mainland's largest coal producer, expects demand for the fossil fuel to remain lacklustre in the second half of the year and supply to fall.

The company said yesterday its interim profit fell 7 per cent, which was a better result than analysts had expected.

"China's coal demand is expected to maintain its low-growth in the second half," the company said in its results report. "As some high-cost, low-quality, highway transportation-reliant mines have already cut output or shut down, second-half output is expected to fall further."

The price of coal in the mainland has fallen around a third since late 2011 as demand weakened amid an economic slowdown and an increase in supply.

Power demand, the main factor driving coal use, grew 4.4 per cent year on year in the first half, compared with 4.8 per cent last year and 11.7 per cent in 2011.

Power demand increased 8.1 per cent year on year last month from 6 per cent in June.

China Shenhua's net profit in the first half dropped to 24.9 billion yuan from 26.7 billion yuan in the year-earlier period. The result exceeded by 8 per cent the average estimate of two analysts polled by Bloomberg.

A 15.6 per cent fall in coal production operating profit was offset by a 30 per cent jump in profit from power generation and a 33 per cent rise in railway operations profit.

Turnover grew 4.7 per cent to 127.2 billion yuan, on the back of a 9.3 per cent rise in coal sales to 242.7 million tonnes and a 3 per cent rise in electricity sales to 37.1 billion yuan.

Those were largely offset by a 7.6 per cent fall in average coal selling prices to 406 yuan a tonne. First-half coal sales volume amounted to 52.2 per cent of its full-year target set early this year. First-half output of self-mined coal, which is much more profitable than sales of coal sourced from third-parties, grew 1.6 per cent.

A major factor for the decline in profit was an increase in production costs and lower coal prices.

First-half coal production costs rose 5.4 per cent to 123.4 yuan per tonne, due to higher mine engineering costs and the expense of relocating residents affected by its mines.