China Coal Swings to Profit as Sales Rise While Output Drops

  • Profit climbs to 225 mln yuan from 1.07 bln yuan loss
  • China’s coal output declined 10% during the first seven months

China Coal Energy Co. swung to a profit as it maintained steady sales while production and costs fell, and as it benefited from a one-time gain. Shares dropped in Hong Kong on Thursday.

Net income during the first half of the year was 225 million yuan ($34 million) from a 1.07 billion yuan loss a year ago, the Beijing-based coal producer said in a statement to the Hong Kong stock exchange on Wednesday. Revenue fell 12 percent to 26.3 billion yuan, it said.

Strict cost controls and a recovery in coal prices were among reasons cited by China Coal for the turnaround. The company’s commercial coal sales rose 2.1 percent to 65 million tons in the first half of the year, while production slumped almost 13 percent to 40.4 million tons, the company said last month. Cost of sales dropped 14 percent to 23.3 billion yuan.

“The effect of coal destocking was significant,” the company said in its earnings statement. “The company methodically organized production and sales, firmly enhanced quality and improved efficiency, strengthened budget enforcement, and strictly controlled the costs and expenses.”

China Coal’s shares dropped 3.2 percent to HK$3.60 as of 11:08 a.m. in Hong Kong, paring its earlier drop of as much as 4 percent though still among the worst performers on MSCI’s Asia-Pacific Energy Index. The city’s benchmark Hang Seng Index was little changed.

Price Outlook

China Coal’s underlying losses narrowed to 704 million yuan in the first half from 1.1 billion yuan a year ago, after stripping out investment gains, Citigroup analysts including Jack Shang said in a research note. The company said the 929 million yuan one-time gain came from equity transfers of “less relevant” assets, which it originally announced in April.

“We expect thermal coal price will continue to rise into the fourth-quarter due to supply deficit and China Coal could be a potential beneficiary of coal production policy changes,” the Citigroup analysts wrote. The company may benefit if the government allows some mines to produce for 330 days a year, up from the current restriction of 276, they wrote. Citigroup raised China Coal’s target price to HK$4.30.

Coal prices have made a comeback after five years in the doldrums, outpacing earlier this year both oil and natural gas as China’s efforts to reduce mining capacity boosts prices and increases the appetite for seaborne imports. China’s coal output fell 2.7 percent in July from the previous month to 270 million tons, according to data from the National Bureau of Statistics. Output declined 10 percent during the first seven months of the year.

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