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Shenhua cuts 2009 capital expenditure by 16%

(Agencies)
Updated: 2009-03-30 14:35

China Shenhua Energy Co, the world's biggest coal producer by market value, cut capital spending by 16 percent for 2009 because of falling power demand amid the global financial crisis.

The company earmarked 29.9 billion yuan ($4.37 billion) for capital expenditure in 2009, down from 35.8 billion yuan a year ago, the company's annual report said.

Its shares were down 5.1 percent on Monday after the firm posted an unexpected drop in quarterly net profit as higher costs and sluggish demand squeezed margins.

The stock fall was in line with a near 5 percent slide on the index for major Chinese mainland companies listed in Hong Kong.

Shenhua's president Ling Wen told reporters at a media briefing that the firm has signed agreements with the country's power plants for domestic long-term contract sales, but declined to disclose the price.

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"The contracts so far that have been signed are very satisfactory from our point of view," Ling said. "Whether it is from a quantity or price point of view, we are confident that our sales target will be met."

Shenhua has agreed to offer State-owned conglomerate China Resources Group 85 million tons of thermal coal over the next five years, Xinhua news agency reported on Saturday.

China's coal miners and power plants have been embroiled in a dispute over annual prices this year. Coal miners have come under pressure to lower prices by the country's power generators, which, in recent months, have sought out coal at cheaper prices from abroad, worsening the oversupply at home.

But Ling said "the increase in imported coal will not affect the Chinese market," as the volume of imported coal is still very small relative to China's total coal consumption.

Shenhua's sales in the first quarter of this year are "better than our expectations," Ling said, but he did not give details. Sales from China, the world's top consumer of the fuel, account for about 91 percent of the firm's total coal sales.

China's coal miners are grappling with weaker prices as slackening industrial activity in the country crimps demand for the fuel. But analysts say that Shenhua, which has locked in 83 percent of its coal revenue from contract sales, is more insulated from the sharper fall in spot prices than rivals Yanzhou Coal and China Coal Energy.

The coal maker forecasts its commercial coal sales volume to reach 220 million tons in 2009 against sales of 232.7 million tons in 2008.

Chairman Zhang Xiwu said the company's railway segment will be the major growth driver for the firm. Shenhua will allocate 7.6 billion yuan to develop its rail business this year, compared to 2.5 billion yuan in 2008.

Shenhua, China's largest coal producer and exporters, said it expects China's coal export volume to fall slightly in 2009.

In 2008, the coal export volume was 21.2 million tons, an 11.7 percent fall from the previous year. Export selling prices reached 577.2 yuan per ton, a 45 percent increase from the previous year.

Shenhua said the increase in demand for coal in the Asia-Pacific market this year will be mainly from India, adding that imports of thermal coal by India are expected to rise by 10 million tons this year.