China coal miners' shares afire despite market slump
Mon Jan 28, 2008
HONG KONG, Jan 28 (Reuters) - Shares in major Chinese coal producers ignited on Monday even as the market chilled, buoyed by expectations that global prices for the hydrocarbon will keep rallying on the back of China's most severe power crunch ever.
Analysts remain upbeat on the sector's outlook for 2008 as China's economy rages ahead despite a potential global slowdown and as supply of coal, which fires an estimated three-quarters of the country's electricity, stays under pressure.
Prices soared just last week after China, the world's top energy consumer after the United States, ordered a two-month freeze on exports in a global market already facing tight supply.
Shenhua (1088.HK: Quote, Profile, Research), the country's largest miner of coal, gained 4.7 percent before faltering, standing 1.1 percent higher at midday. Rivals China Coal (1898.HK: Quote, Profile, Research) and Yanzhou Coal (1171.HK: Quote, Profile, Research) were both up about 3 percent. Hidili Industry (1393.HK: Quote, Profile, Research), the smallest of the group, shot up 4.1 percent.
The benchmark Hang Seng Index .HSI sagged 4.7 percent.
Analysts say Shenhua, which wins a 2.1 percent earnings boost for every 1 percent rise in prices, will benefit the most from an inexorable climb in prices as power plants battle for a shrinking pool of available coal -- the result of transport bottlenecks, closures of polluting mines, and a surprisingly cold winter.
"A lot of power plants' coal inventories came in below the 'red line', or seven days of consumption," said BNP Paribas's Lance He. "We expect coal makers to enjoy average selling price hikes in 2008.
"Given the tight supply, we believe incremental coal demand would mainly trade at spot prices. We expect large coal makers' spot sales to increase in 2008," He wrote on Friday.
PALPABLE SHOCK
Beijing's shock move, aimed at resolving a power supply crisis that has disrupted manufacturing in about a dozen provinces across China, took about 9 million tonnes of the fuel out of the global market just as major exporter South Africa shut factories and mines because of crippling power shortages.
That left Asian customers scrambling for replacement fuel and European ones worrying over further price rises in coming weeks because of South Africa's apparent inability to fill the gap.
Still, soaring prices spell robust earnings for China's coterie of listed coal miners. BNP's He expects Shenhua to post 37 percent growth in 2008 earnings -- far outpacing 2006's 12 percent. The coal giant has not unveiled 2007 earnings.
Endemic deficiencies in China's massive but highly fragmented, inefficient coal production industry will persist, some analysts say.
The possible advent of a more market-driven coal pricing system in 2008 would also allow coal producers to jack up prices, they said.
"From a long-term perspective, structural coal supply deficiency, mainly among small urban coal mines, is the key factor restricting coal supply," wrote KGI's Stephen Wang.
"Under such circumstances, unless large state-owned coal enterprises expand capacity significantly, the existence of a large proportion of small private coal firms will continue to bring supply fluctuations to the sector, impacting coal prices in the long run." (Reporting by Edwin Chan; Editing by Anne Marie Roantree)
Source: Reuters
China coal miners' shares afire despite market slump
