No end in sight for coal industry's four year winter

Faced with falling prices and weak demand in a slowing economy, coal companies will find it an opportune time for mergers and acquisitions, industry experts said on Tuesday. [Photo/China Daily]

China Shenhua Energy Co Ltd (China Shenhua) and China National Coal Group Corp (China National Coal), the two largest coal producers in China, posted their first half year's result for 2015, with China Shenhua's net profit declining for three consecutive years and China National Coal Group Corp posting a loss for the first time since 2012.

According to the statements, China Shenhua's net profit fell 37.4 percent to 20.87 billion yuan ($3.26 billion). China National Coal posted a loss of 965 million yuan ($150.93 million). This is the first time the company posted a loss in the first half since 2012.

China's economy is facing growing downward pressure, demand for energy, especially traditional energy sources like coal, is waning, both sale price and quantity are down, and drops in profit for coal companies such as China Shenhua and China National Coal are inevitable, said Lin Boqiang, Professor at Energy Research Center of Xiamen University. "China Shenhua has its own coal mine, rail road and port, its cost should be lowest in China, if China Shenhua's profit is declining, other coal producers must be facing even tougher situations."

The price of coal has been falling for three years, with the price of a ton of coal in Qianghuangdao port dropping more than 50 percent from 860 yuan per ton in 2011 to 410 yuan per ton, while the price for coking coal dropped almost 60 percent from 2100 yuan per ton to 900 yuan per ton.

As coal prices tumble, the industry's future is gloomy. Domestic coal producers made a profit of 20.5 billion yuan in the first half of 2015, only 10 percent of the same period of 2012, according to Lu Junling, the deputy bureau chief of National Development and Reform Commission.

The disappointing performance of China Shenhua and China National Coal reflected an industry still facing an uphill battle. Sluggish economic growth and overproduction still haunts the industry in China and this winter for coal producers may last longer.