Yanzhou Coal profit rises 4.8% on gains in China prices, sales

Yanzhou Coal Mining Co., a unit of China's fourth-biggest coal producer, said first-half profit rose 4.8 percent after sales and prices increased. The company forecast "slightly tight'' global supplies in the rest of 2007.

Net income climbed to 1.50 billion yuan ($198 million) from 1.43 billion yuan a year earlier, the company, based in the eastern province of Shandong, said in a statement to the Hong Kong stock exchange Friday. Sales gained 13 percent to 6.70 billion yuan.

Yanzhou Coal expects 2007 profit to rise, its first full- year net income gain in three years, helped by contributions from the company's Austar Coal mine in Australia and lower costs, Director Wu Yuxiang said April 23. Coal prices in the world's fastest-growing major economy have risen almost threefold in the past five years, benefiting the nation's producers.

"The economic development of the People's Republic of China is maintained at a rapid rate, which results in strong demand for coal by primary industries,'' Yanzhou said in the statement.

Per-share earnings rose to 0.31 yuan in the first half from 0.29 yuan. Profit missed the median estimate of 1.68 billion yuan in a Bloomberg News survey of six analysts.

The company's average sales price in the first half increased 12.9 percent to 390.1 a metric ton, it said Friday. The average domestic coal sales price rose 20 percent to 395 yuan a ton. The average export price dropped 20 percent to 336.15 yuan.
Net Importer

China is changing from a net coal exporting country to an importer and this will increase domestic supply, the company said. Still, enhancements to China's railway system have failed to end bottlenecks that restrict coal supplies, the company said. Its cost of sales and railway transportation jumped 28 percent in the first half.

China "is for the first time aware of the importance in energy saving and CO2 emission reduction,'' which will accelerate the consolidation of the coal industry. This will enhance the competitive advantage of large-scale coal companies, Yanzhou said.

Global coal supplies will be "slightly tight'' in the second half, with prices of the fuel to rise amid constraints on shipments from Australia and increased imports by China and Japan.

Japan's demand for coal may increase in the second half of this year after the shutdown of the world's biggest nuclear power station following an earthquake last month. Tokyo Electric Power Co., Asia's largest power utility, said this week that it more than tripled crude oil consumption in July to compensate for the loss of power from the Kashiwazaki Kariwa plant.

Rising Demand

China's coal demand may rise to 2.6 billion tons in 2010 because of strong demand from power and steel producers, the National Development and Reform Commission said Jan. 22. China, with the world's third-largest coal reserves, uses the fuel to generate almost 80 percent of the electricity it uses.

Deutsche Bank AG raised its forecasts for Asian contract prices for thermal coal by 6 percent for the year starting April 2008 to $61.60 a metric ton and 3 percent for the following year to $61, analyst Christine Pu wrote in a research note July 9.

The price of thermal coal in Australia's Newcastle port, the world's largest coal export harbor, rose to a record $72.37 a ton in the week ended Aug. 10. JPMorgan Chase & Co. said on July 26 the price of power-station coal in China may rise 6 percent next year to 458 yuan.

Yanzhou Coal shares in Hong Kong gained 68 percent this year, compared with a 2.1 percent increase in the benchmark Hang Seng Index. The stock in Shanghai has surged 165 percent during the period, outpacing a 127 percent gain in China's key CSI 300 Index.

The company will spend 600 million yuan this year to relocate villagers from mines, down from 900 million yuan in 2006, Yanzhou's Wu said in April. Payments including compensation to residents, who live atop mines, have eroded past earnings. The coal producer is focusing on acquisition targets in Australia to help boost global sales amid rising prices, Wu said in April.