China Shenhua Energy posts a 7pct drop in Q3 2012 net profit

Reuters reported that China Shenhua Energy Co Limited, the country's largest coal producer, posted a 7% drop in third quarter net profit, as a slowing Chinese economy cut into coal demand.

Stagnating demand from the world's second largest economy has dragged prices of coal, iron ore and other commodities to multi year lows, hurting the profits of global miners such as BHP Billiton and Vale SA.

Analysts said that but Shenhua, which also owns power plants, railways and ports, is still on track to deliver a modest gain in its full year profit. Unlike competitors who do not own power and transport infrastructure, Shenhua's profitability is at least partially insulated from coal price fluctuations in what some analysts say is the toughest coal market in China for more than a decade.

Net profit for the first nine months of 2012 reached CNY 38.8 billion, versus a restated profit of CNY 35.7 billion a year earlier, under international accounting standards.

According to Reuters calculations, third quarter earnings fell to CNY 12.1 billion from CNY 13.0 billion a year earlier. The result was above the mean forecast of CNY 10.8 billion in a Reuters poll of three analysts.

Some analysts believe the worst may be over for China's coal market as prices are bottoming out, with coal mining firms trimming production in response to weak demand.

Mr Andrew Briscoll, analyst at brokerage CLSA, said that "I think coal prices have found a floor. We are expecting a slow recovery in prices through the fourth quarter and into the first half of next year."

In its quarterly report, Shenhua said thermal coal prices in China were currently stable after bottoming out in the third quarter. It expects seasonable demand growth in the rest of the year, but China's coal imports may fall because of price fluctuation, it said, without elaborating.

Shenhua's commercial coal output rose 10% to 231 million tonnes in the first nine months. Sales volume jumped 15% to 330 million tonnes. Its total power output dispatch rose 10% to 144.8 billion kilowatt hours.

China Coal Energy, the country's second largest coal producer, this week posted a 22% slide in its third quarter earnings. Yanzhou Coal Mining, a smaller coal miner that controls Australia listed Yancoal Australia Limited, posted a net loss of CNY 80 million for the third quarter versus a profit of about CNY 1.1 billion a year earlier.

Source - Reuters

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