Executive defends industry and rising prices as Yanzhou Coal's net soars 127pc Rising coal prices are not generating obscene profit levels for producers and complaints by power companies about soaring costs are unfair, according to a Yanzhou Coal Mining official. Wu Yuxiang, the chief financial officer of the mainland's largest listed coal producer, also said power companies had been supported by the central government's 'unreasonably favourable' industry policies. 'Coal prices have traditionally risen less than those of electricity ... the coal industry has been suffering from losses for years and its profitability definitely has not reached obscene levels,' Mr Wu said. 'Power companies are not losing money. They are merely witnessing a fall in profits,' he said at a post-annual results press conference. He also said the power industry could afford to pay its workers much higher wages than those of coal miners. 'If coal companies' average labour cost reaches the average national income, the coal industry will be unprofitable, and if it reaches that of the power industry's level, it will definitely be loss-making,' he said. Yanzhou Coal's average annual labour cost - the highest in the industry - was about 20,000 yuan per head, compared with 40,000 yuan in the power industry, he added. Mr Wu said coal companies' returns needed to be raised to justify the new investment that would help satisfy rising demand. His comments came after the average national coal price surged 26 per cent last year as the country suffered from its tightest coal supply in two decades. At the end of last year, the national coal inventory amounted to 104 million tonnes, 5.81 million tonnes less than at the start of the year, despite a 13.9 per cent jump in coal sales to 1.89 billion tonnes for the year. Huadian Power International, a Yanzhou Coal customer also based in Shandong province, rejected Mr Wu's arguments. 'The sharp rise in coal prices in the past two to three years has already had a very big impact on the profitability of power companies,' a spokesman said. 'We power companies are looking for reasonable levels of coal and power prices, but at the moment both are unreasonable.' He also said that it would be unfair to compare labour costs of power and coal companies as the power industry was much less labour-intensive and needed more investment on equipment. 'It's more relevant to look at the return to asset ratio ... you need to give people an attractive enough return to induce them to invest in new capacity,' the spokesman said. Yanzhou Coal last year saw net profit jump 127.5 per cent to 3.15 billion yuan - the highest since its listing in 1998. This was achieved on a 57.9 per cent surge in coal prices and despite a 3.6 per cent drop in sales volume and a 25.44 per cent rise in unit production cost. The company aims to sell 39.8 million tonnes of coal this year, up 4.7 per cent from 38 million tonnes last year.
