Event:
Recently we went to Heifei, capital of Anhui province, and paid a visit to Xinji Energy, communicating with management concerning market concerns.
Comments:
Coal output is expected to be higher than planned in 08E. The company currently boasts four operating coal mines with a combined capacity of 10.55m tons. Of them, Xinji I, Xinji II and Xinji III have an estimated capacity of 7.5m tons, which is supposed to be their actual production for geological reasons, while Phase I of Liuzhuang Mine, coming on stream last year, is likely to reach a coal capacity above the estimated 3m tons thanks to favorable geological conditions and adoption of new mining technology. In 1Q, production of the new mine exceeded the planned figure by 0.2-0.3m tons. With tightening supply of coal, it will quite likely increase its capacity further. Thus, it is almost a foregone conclusion that the company’s coal production for the full-year 08E will go beyond its previous expectations.
We anticipate a fast rise in coal price in 08E. By our estimation, the company’s average coal price will touch Rmb420/ton, up 18% from a year ago. Despite a rapid growth, however, its aggregated coal price will stay below sector average of Rmb600/ton in Shandong, Jiangsu and Anhui provinces according to the data provided by COALWorld.net. This is mainly because of high proportions of contract coal and provincially-sold coal, both standing at over 70%. The company is endeavoring to improve product mix, raising proportions of locally-sold coal and nationally-sold coal. We believe that as new coal projects enter operation, the company will sell more and more coal at local markets or to other provinces and thereby increase its average coal price.