Yanzhou Coal: paltry losses from new policy

Updated: 2008-06-05 07:48

By Hui Ching-hoo(HK Edition)

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The mainland's third-largest coal producer, Yanzhou Coal Mining, has downplayed the impact of a new mandate that requires Shandong coal miners to supply an additional 7.68 million tons of coal in the next three months.

The order was given to address the rising consumption of electricity in the peak summer season. But it is expected to hurt the profits of coal miners, given that coal prices in June are set at a discount of 10 yuan per ton.

Yanzhou Coal Mining Director Zhang Bocai told reporters yesterday during a telephone conference that the effect of the price cut on the company is very minor. He estimated it will reduce revenues by about 15 million yuan - or 0.1 percent of the company's yearly earnings. "It is just a paltry proportion," Zhang said.

Yanzhou Coal will cover about one-fifth of the additional coal supply.

But he said the company has raised coal prices for chemical and construction uses by 50 to 100 yuan per ton, which sufficiently offsets the negative impact of the price cut.

"The additional income from the increase in construction and chemical coal is much higher than the loss of the price cut," he explained.

Therefore, he said the company will not raise the contract price of coal in response to the new policy.

Contract coal accounts for about one-third of the company's yearly coal production of 10 million tons.

Asked whether the coal price intervention will be pushed forward to other provinces, Zhang said he hasn't ruled out the possibility if the electricity supply is under pressure.

However, he believes that the government is unlikely to carry out the price adjustment in large extent in the short run, in consideration of furious inflation and the run-up to the Beijing Olympics.

He declined to predict the trend of coal prices in the second half of the year, aside from saying it remains on an upward trend. "Exact adjustments depend on market supply and demand," he said."

As a result of the new policy, shares of mainland coal stocks dropped significantly yesterday.

China Coal Energy fell 6.11 percent to close at HK$16.30, while China Shenhua Energy and Yangzhou Coal Mining dropped 4.9 percent and 8.91 percent, respectively, settling at HK$33.90 and HK$15.54.

(HK Edition 06/05/2008 page2)