HONG KONG: Coal prices in China, the world's largest consumer and producer of the fuel, may increase 5 to 10 percent next year as economic growth boosts consumption, analysts predicate.

The current price for immediate delivery has climbed to 610 to 620 yuan per ton from an average 575 yuan during the first three quarters this year, according to Yu Xiaoyu, an energy analyst at Taifook Securities.

The growth will help the country's leading coal producers to post stronger reports. Shenhua Group said Friday it may report an 18 percent gain in 2009 thanks to a rebound of industrial activities spurred the demand.

Shenhua's chairman Zhang Xiwu said at a conference Friday that the company's net income may increase to 45 billion yuan, while revenue may grow 14 percent to 160 billion yuan.

"The company decided to increase the proportion self-produced coal and reduce imports from competitors, that has helped minimize their costs," explained Yu.

"Chinese coal companies will have an optimistic picture next year, the consumption will pick up and accordingly, production will have double-digit growth next year," she said.

Zhang said last month that the country's largest coal producer planned to spend 270 billion yuan to expand production and coal storage capacity over the next four years. The Hong Kong-listed unit of Shenhua Group will double its coal output capacity in five years, and build strategic coal storage facilities in central, southern and eastern China.

The listed company will also expand coal transportation and boost power generation capacity. It did not disclose its inventory level. Yu speculate its inventory level is "healthy".

Shenhua's profit in 2008 was 38.3 billion yuan and revenue was 140.6 billion yuan, according to data from the State-owned Assets Supervision and Administration Commission. It didn't say whether the figures are before or after tax.

The Hong Kong-listed Shenhua Energy is scheduled to report third-quarter earnings next week.

Shenhua's raw coal output this year is forecast to rise to 320 million metric tons from 281.25 million tons last year, and electricity generation may climb to 116 million megawatt-hours from 111.8 million megawatt-hours, Zhang said.

China's demand for coal is rising as the government's stimulus spending drove third-quarter gross domestic product growth to its fastest pace in a year.

Unfortunately, rising demand may not help increase coal producers' bargaining power with their largest customers - power plants. The annual price-negotiating meeting between the two parties may not have a happy ending again, Yu said.

In China, coal prices are determined by market demand. Power companies tend to bargain aggressively with their coal suppliers, since it is impossible for them to pass on the higher cost to users.

(HK Edition 10/24/2009 page5)