HONG KONG: Yanzhou Coal Mining, the locally-listed unit of the fourth largest coal producer on the mainland, said its net profit for the first half this year might drop by 60 percent year-on-year amid prospects of a continued drop in the price and demand for coal.

Chief Financial Officer Wu Yuxiang yesterday told a press briefing the twin challenges will continue to bedevil the company's operations the rest of this year following a difficult first quarter.

In January through March this year, Yanzhou Coal saw the average price of coal drop 15.1 percent to 492.66 yuan per ton, while the sales volume fell 11.9 percent to 7.92 million tons.

As a result of the fall in price and sales volume, the company's net profit in the first quarter plunged 48 percent year-on-year to 831 million yuan and its revenue dropped 21.04 percent to 4.44 billion yuan.

Wu said it would be difficult for Yanzhou Coal to accept a further reduction in contract prices for coal this year.

"In 2008, the market price of coal was too high, yet the contract price was too low. We are therefore hoping to see some increase later this year," Wu told reporters in Hong Kong yesterday.

He said Yanzhou Coal has already signed domestic coal sales contracts covering 32.3 million tons.

However, negotiating a good price with power firms proved difficult, he said.

Yanzhou Coal hopes to see its total sales volume this year reach some 35.05 million tons, lower than last year's sales volume of 37.56 million tons.

It also aims to export this year some 500,000 tons, mainly to Japan.

The volume will be some 200,000 tons less than the volume that the company exported last year, he said.

"Our principal market is on the mainland. We export only about a third of total output because prices that we fetch on the mainland are even better compared to those in the international market," Wu said.

With the global economy in recession, Yanzhou Coal expects its methanol production this year at around 330,000 tons.

With methanol supply oustripping demand, the price for the commodity is likely to consolidate at a low level, he said.

"The growth of our methanol business will be quite limited because demand from the chemical industry will likely be lackluster this year," Wu said.

Yanzhou Coal had a banner year in 2008, underpinned by several positive factors.

Small coal producers saw a consolidation between January to September last year, resulting in a rationalization of the mainland's coal production industry.

The average price of coal last year soared 56.6 percent to 640.2 yuan per ton.

Yanzhou Coal's net profit last year jumped 100.9 percent to 6.49 billion yuan.

Shares in Yanzhou Coal slid 5.82 percent or HK$0.44 to close at HK$7.12 yesterday, falling in line with 2.74 percent drop in the benchmark Hang Seng Index.

(HK Edition 04/28/2009 page16)