Coal profits might be unsustainable

China's listed coal companies turned major profits last year, reversing previous deep losses.

Rising coal prices are responsible, according to the latest estimates, but one leading industry expert has warned of unsustainably high prices.

According to an estimate by the National Development and Reform Commission, total profits for the country's designated large coal companies with annual turnovers of at least 20 million yuan ($2.9 million; 2.7 million euros; 2.3 million) were 95 billion yuan in 2016.

One major producer - China National Coal Group Corp - has estimated its net profits at 1.8-2.2 billion yuan in 2016, compared with losses of 2.5 billion yuan the previous year.

Miners carry parts at a colliery in Huaibei, Anhui province. Xie Zhengyi / For China Daily

State Development & Investment Corp, the State-owned investment holding with major investments in coal mining and power generation, projected 245 million yuan in net profits last year, compared with losses of 2.5 billion yuan in 2015.

The biggest expected profit growth so far for 2016 in the sector is expected for Inner Mongolia Yitai Coal Co Ltd, a rise of 2,110 percent to 2 billion yuan.

According to a report on the coal industry in 2016 by the China National Coal Association, coal companies above the designated scale realized revenue of 2.06 trillion yuan in the first 11 months of last year. Net profits stood at 85 billion yuan, up 157 percent year-on-year.

Coal prices last year were stable in the first half before shooting up in July. Power coal prices reached 700 yuan per metric ton at one point in the fourth quarter, compared with slightly more than 200 yuan per metric ton at the beginning of the year. Coking coal prices soared to 1,800 yuan per metric ton.

The increase was dampened by the signing of mid and long-term contracts between coal suppliers and consumers, mainly power and steel companies, as requested by the government.

Jiang Zhimin, president of the CNCA, warns that most coal companies are still in the red. Many of them are still defaulting on employees' salaries and pensions.

"On one hand, turning a profit has shown that capacity reduction has achieved noticeable results," he says.

"On the other hand, the fast-rising prices were the unexpected result of multiple factors. After all, demand has not increased. Therefore, such high prices are not sustainable."

Hu Bin, an analyst at Founder CIFCO Futures, says that coal prices in 2017 may stay low in the beginning and then rise to no more than 640 yuan per ton.

According to a report by mysteel.com, coal supplies this year are unlikely to increase by a large margin compared with last year.

The report says the government will increase its macro management of the market. Consequently, it added, prices are not going to fluctuate severely this year.

yangziman@chinadaily.com.cn