China Shenhua Energy Co Ltd, the world's largest coal producer, said Monday it expects the growth in coal demand to slow in the second half of this year as the government pushes further ahead with its energy-saving and emission-reduction initiatives.

The first half saw a solid growth in coal demand as the company's coal sales rose by 11.6 percent to 137.4 million tons over the same period last year. However, the second half will see the growth momentum ease, the company's president, Ling Wen, suggested in a media briefing on the company's interim results.

Shenhua aims to produce 229 million tons of coal this year and targets full-year sales of 272 million tons, the company said in a statement.

"The demand growth will slacken in the second half of 2010 compared with the first half, as the nation carries forward the commitment to transform its economic growth pattern. Part of the plan is to subject high-polluting and high energy-consuming industries to tougher regulation," said Ling.

Apart from the growth in demand, the first half was characterized by a shift of the company's sales portfolio. Spot sales accounted for 40.6 percent of the company's overall sales in the first half, up from 27.2 percent a year earlier. The remainder of this year is going to see an even higher proportion of spot sales, which can capitalize on higher spot prices when compared with contracted prices, according to Ling.

Compared with the average sales under long-term contact at 461.9 yuan per ton, the price of spot sales averaged 583 yuan per ton in the first half, up from 462.9 yuan a year earlier.

"Sales under long-term contract have remained the priority of the company's business since the very earliest days of its development, which has helped a stable and long-standing customer base," said Ling.

Founded in 1995 with a production capacity of five million tons, the company has seen its production capacity grow by leaps and bounds in the past several years until today when it has become the world's No 1 coal producer.

"The decision was made at the start of this year to raise the proportion of spot sales in response to higher spot prices. We will stick to the change in the second half by further increasing the spot coal sales volume," said Ling.

However, he cautioned that the buoyancy of spot prices seen in the first half is unlikely to be repeated in the second half, as the ample hydropower supply that comes along with the abundant rainfall this summer will ease the country's reliance on coal-fired power generators.

"The spot price growth will decline in the second half compared with the first half although we don't expect a sweeping reduction of the growth rate," Ling said. Indications of that trend have been seen so far with the company's spot prices falling back in the past few weeks. The company reported last Friday a 14 percent year-on-year increase in net profit to 19.27 billion yuan for the first half ended June as revenue grew 22.2 percent to 69.73 billion yuan.

China Daily

(HK Edition 08/31/2010 page3)