China’s coal sector set to suffer more economic chills this year

China’s troubled coal sector has been suffering further from economic chills, with more listed coal producers recording declines in profit for the first nine months of the year.

And the industry’s “winter” may not be over yet, with analysts predicting coal prices may slump further in the fourth quarter due to heavy downward pressure on the mainland economy and sluggish industrial demand.

The CSI SWS Coal Index, a gauge that tracks listed coal companies in Shanghai and Shenzhen, fell 3.2 per cent last week and has fallen a further 1.7 per cent this week.

China Shenhua Energy, the world’s largest coal supplier, saw its shares drop 4.7 per cent and 2 per cent in Hong Kong and Shanghai respectively last week, after the company reported third-quarter profit that slid 40 per cent year on year to 4.8 billion yuan, due to a continuous fall in coal prices and weak demand. In the same period, China Coal Energy, the mainland’s second-largest coal producer, sank 8.5 per cent in Hong Kong and retreated 5 per cent in Shanghai, as its third-quarter loss widened to 701 million yuan, compared with a loss of 27 million in the same period last year. China Coal Energy expects to record a net loss for 2015, the first since its listing in 2008.

China Shenhua Energy has lost a combined 2.1 per cent in Shanghai in the first two trading days of this week, and its H-shares are down 0.6 per cent. China Coal Energy shed a combined 2.4 per cent in Shanghai in the same period, while its Hong Kong-listed stock recovered 1.5 per cent.

“Despite China’s expansionary fiscal and monetary polices to bolster growth, industrial demand is still slowing further, leading to a continuous fall in coal prices,” GF Securities analysts An Peng and Shen Tao said in a recent research report, noting that demand for coal had been “extremely weak”.