High coal prices cause continuous losses in the downstream coal industry

Coal integration from Shanxi has recently risen to the national level. On the 25th, Premier Wen Jiabao presided over the executive meeting of the State Council to study and deploy the promotion of the merger and reorganization of coal mining enterprises and the development of inland river water transportation in the Yangtze River.

The meeting emphasized the need to actively explore effective ways for mergers and acquisitions of coal mining companies, support qualified state-owned and private coal mining companies to become mergers and reorganization entities, encourage various ownership coal mining enterprises and enterprises in the electricity, metallurgy, and chemical industries to use property rights as a link and shareholding systems. As the main form of mergers and acquisitions.

In this connection, an interview was conducted with relevant listed companies in Shanxi. Everyone said that the high coal prices for several consecutive years have greatly reduced the strength of the coal downstream industry, and most of them faced a difficult operating environment. And participating in coal mergers and reorganization of these non-coal enterprises also face financial bottlenecks, technical barriers, security and other difficulties.

Downstream industry or powerlessness Chae Lipei of the Electric Power Securities Department said that it is a good thing to encourage companies in the power and other industries to participate in mergers and reorganizations, but the time is still a little late. Continuous losses have greatly reduced the strength of the coal downstream industry. Now some downstream companies may participate in coal mergers and reorganizations. Some are not able to do it.

The three-year coal price has remained high and the power companies have faced a difficult market operating environment. On August 27th, the 2010 mid-year report issued by Yuze Power showed that in the first half of the year, although the company had completed power generation of 8.933 billion kwh, the sales volume was 8.121 billion kwh, which represented an increase of 15.60% and 15.96% over the same period of last year. The operating income was 2,290.4474 million yuan, an increase of 18.26% over the same period of last year, and the operating cost was 236,082,660 yuan, an increase of 22.63% over the same period of last year. However, the company’s net profit still lost 14,494.52 million yuan, an increase of 102.48% over the same period of last year.

Yuze Power said that in the first half of the year, the company's main problem was still high fuel costs, reflected in the coal market supply decreased, prices continued to rise, as of the end of the reporting period, thermal coal prices have reached the highest level in years. From January to June, the unit price of integrated standard coal for power generation increased by 74.78 yuan/ton from the same period last year. The company's profit due to the increase of standard coal unit price decreased by 207 million yuan year-on-year.

As coal prices are expected to remain high and there is a certain degree of uncertainty in the continued growth of power generation, the company also expects to accumulate a net loss of 380-400 million yuan from January to September 2010.

The coking industry is facing the same problems as the power industry. China's largest coke listed company, *ST Shan Jiao, originally hoped to turn losses this year, but now it is once again caught in a loss-making situation in the entire industry, which makes it difficult for *ST Shan Jiao to do so. In 2008 and 2009, *ST Shanjia lost a total of 238 million yuan and 745 million yuan respectively. In the first half of this year, the company lost another 252 million yuan. If this year cannot be turned into losses, *ST Shanke, which has suffered losses for two years, is facing the risk of delisting.

The safety and security capabilities have been tested. The State Council meeting requires that mergers and acquisitions of the main enterprises must take up the safe production responsibilities of the merged companies and ensure the safe and stable production of coal mines.

The question of whether social funds have the ability to guarantee the safety of the acquisition of coal mines has always been a problem most emphasized by coal companies. This is also what the government departments are most worried about.

A person in charge of a large-scale coal enterprise in Shanxi believes that although the downstream enterprises have acquired resources through coal integration, they will also assume responsibility for the safe production of coal mines.

Due to the lack of safety investment in small coal mines, resulting in a lack of security debt and personnel safety production awareness, there are various security risks. If the downstream companies are driven by profits in the absence of an understanding of the coal industry, blindly investing in coal mines with poor conditions may become the hot potato in the future.

Shanxi promotes the use of large-scale coal enterprises as the main part of mergers and acquisitions. After mergers and reorganizations, the scale of coal mining enterprises shall not be less than 3 million tons/year in principle, and the production scale of mines shall in principle be not less than 900,000 tons/year, and all of them shall be fully mechanized. The main mechanized mining has had a direct impact on reducing the incidence of safety accidents.

After the merger and reorganization of Shanxi, the retained mine will be standardized in accordance with the safety and quality of the mine. The level of mine mechanization and informatization will be greatly improved, and the intrinsic safety guarantee capability will be greatly improved.

Enterprises in other industries have entered the coal industry and there is no advantage in large-scale coal companies in terms of expertise. In the coal mine safety reform and technological transformation of merged companies, they will face various problems such as capital and technology. The special nature of the coal industry has limited the possibility of social capital entry, and will allow some downstream companies to retreat in the present reality.

However, industry analysts believe that the meeting emphasized the need to strengthen policy guidance, the introduction of fiscal and taxation, financial and other aspects of supporting measures to support the coal mining safety transformation and technological transformation of the merged companies. Follow-up is likely to introduce some fiscal, financial, and financial policies for small coal mines that have been integrated, such as tax reductions on the purchase of advanced coal-fired equipment for small coal mines and preferential interest rates on equipment purchases to increase mergers and acquisitions.