Demand, price hikes to propel investor interest in sector shares

SHANGHAI - Share prices of listed coal producers are set to soar in the second quarter of this year on the back of demand and price hikes, even as the nation's economic recovery gains further ground and oil prices climb, analysts said on Wednesday.

Most of the stocks in the sector had witnessed tepid performance in the past three months with relatively low valuations.

"Considering the nation's robust economic growth and the coal industry recovery, the sector still remains largely undervalued," said Xiao Hanping, an analyst with China Jianyin Investment Securities.

Shenhua Energy Co Ltd, the country's largest coal producer, has declined by 14.06 percent between Jan 8 and April 7. The company's shares closed at 29.53 yuan ($4.33) on Wednesday, down 1.11 percent.

Shares of Datong Coal Industry Co declined by 14.48 percent during the same period.

On Wednesday, Datong Coal fell 1.47 percent to 39.57 yuan, while Yanzhou Coal Mining Co, China's fourth-largest coal producer by market value, dropped 1.36 percent to 22.56 yuan.

The overall coal sector fell 0.33 percent on Wednesday, with 19 out of 29 stocks seeking lower levels.

Total profits of the coal mining industry grew 91.9 percent in the first two months of 2010, while domestic coal output rose by 32 percent from a year earlier, said Xiao.

Coal prices are generally driven by demand, which is expected to see a sharp upswing in the second quarter as electricity consumption climbs amid rising temperatures, analysts said.

Crude oil for May delivery rose to $85.68 a barrel on the New York Mercantile Exchange on Wednesday, the highest since October 2008.

BHP Billiton Ltd, the world's largest coking coal exporter, in March, has settled its coking coal price at $200 per ton for April to June with Japan's major steelmakers, 55 percent higher than last year's benchmark price of $129 per ton.

China, the world's largest consumer of coal, will also be partly affected by the price hikes from the quarter starting April.

The severe drought in the country's southwestern region is also expected to create a major shortfall in hydroelectric power.

That in turn would spur demand for coal and lead to price hikes of around 20 percent within the next two months, said Chen Liang, an analyst with GF Securities.

Hubei province, where hydroelectric power accounts for 30 percent of the total power supply, is short of nearly 500 million kilowatt-hours of hydropower output.

The province has to make up the shortfall through power generated from 300,000 tons of thermal coal.

According to Guojin Securities, natural resource cost of coal producers has risen by 17.48 percent in the first quarter of this year over the same period last year.

The brokerage forecast the price uptrend to continue for at least the next three months.

CHINA DAILY

(China Daily 04/08/2010 page17)