Why China’s coal freight cut is a double-edged sword
Mainland China’s coal demand fell 4.1 per cent last year
National railway operator China Railway Corporation’s decision to cut its coal freight rate from last Thursday will hurt railway operators but bring welcome relief to a coal mining sector suffering from widespread losses.
State-backed China Railway has slashed its freight rate by 1 fen for each tonne of coal moved for one kilometre, which is estimated to result in logistics cost savings totalling some 10 billion yuan a year, Xinhua reported on Wednesday.
The reduction could amount to 10 per cent, based on the year-earlier freight of 10 fen per tonne-kilometre published by China Railway.
China International Capital Corp’s analysts estimated in a note that the price cut would result in a 2 billion yuan net profit reduction for Shanghai-listed Daqin Railway this year.
The company, which operates the coal railway linking Datong, Shanxi province and the nation’s largest coal port Qinhuangdao, is also expected to suffer from a 6 per cent decline in coal throughput this year due to lower coal demand and traffic diversion from another coal railway connecting Inner Mongolia autonomous region and Hebei province, they said.
The analysts forecast Daqin’s net profit to decline 24 per cent to 10.81 billion yuan this year, and to fall another 10 per cent next year.