China Shenhua to capitalise on strong spot coal prices

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Aug 2010

China Shenhua Energy Co Ltd, the world's most valuable coal producer, said it expects to raise the proportion of its sales from spot coal in the second half to take advantage of higher prices With current spot prices at a 40 percent premium to contract coal prices, analysts say Shenhua can capitalise on better pricing in the second half of the year.
Zhang Kehui, Shenhua's chief financial officer, said on Monday that the company aims to get about 40.6 percent of its total sales from the spot market in the second half of the year, versus 27.2 percent from the same period a year ago.
Shenhua's spot sales also accounted for 40.6 percent of its total sales in the first half.
"In the second half of the year, we'll continue this strategy and our spot coal sales will continue to grow," Shenhua's President Ling Wen told reporters in Hong Kong.
Shares in Shenhua rose 1.6 percent to HK$28.65 by the midday break in Hong Kong, beating Hong Kong's benchmark Hang Seng Index, which was up 0.71 percent, after the firm posted a record second-quarter profit on higher sales..
"Given Shenhua's larger exposure to spot sales, we believe high spot sales can contribute to strong ASP (average selling prices) and earnings growth going forward," Core Pacific-Yamaichi analyst Ankie Ng said in a note.
Ling dismissed speculation that Shenhua's state-owned parent has expressed interest in Australian coal miner Whitehaven Coal, which was rumoured in early August to be a takeover target.
The Australian Financial Review had said in early August that Whitehaven had received soft approaches from Chinese and Indian companies like Shenhua Group and Coal India.
But Shenhua hopes to cooperate with companies from Russia on projects related to coal, railways and ports, Ling told Reuters at the sidelines.
His statement comes after Russia and China bolstered their close relationship late last year when Russian Prime Minister Vladimir Putin ushered through a tentative gas supply agreement and deals worth $3.5 billion.
Separately, Ling said a potential asset injection from Shenhua's state-run parent is "progressing smoothly, but he declined to provide more specifics.
The firm recently issued a statement that said its board has approved a plan to buy coal and power assets from its parent, Shenhua Group Corp.
If China levies a 3-5 percent resources tax on coal, Shenhua's costs will increase by 6-10 yuan per tonne of coal, from 3.2 yuan per tonne now, Zhang said.
Although Shenhua is highly exposed to strong electricity demand in the world's second-largest economy, it has warned that its outlook is clouded by higher costs, including China's long-awaited revamp of its resource tax, which may be extended nationwide from Sept.

Source: Reuters