Two re­forms power coal, metal up­trend

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN meng­fan­bin@chi­nadaily.com.cn

Over­ca­pac­ity re­duc­tion and op­ti­miza­tion of in­dus­trial struc­ture in China are likely to boost not only out­put, prod­uct prices and prof­its of ef­fi­cient listed coal and metal com­pa­nies but their shares, ex­perts said.

In the A-share mar­ket, stocks of listed com­pa­nies in the coal, steel and non­fer­rous metal sec­tors have risen in re­cent days.

Higher prod­uct prices have im­proved com­pa­nies’ fi­nan­cial per­for­mance, es­pe­cially of those in cycli­cal in­dus­tries like coal, iron and steel, and non­fer­rous met­als.

This, in turn, is fu­el­ing the up­trend in their shares, said Zhan Sheng, in­vest­ment di­rec­tor of JZ In­vest­ment, a sub­sidiary of JZ Se­cu­ri­ties. “Higher prod­uct prices will boost prof­its as the costs are fixed.”

Ac­cord­ing to fore­casts of quar­terly fi­nan­cial re­sults, listed com­pa­nies in these sec­tors will see sig­nif­i­cant growth. If their fore­casts come to pass, shares would re­main sta­ble at the cur­rent level, he said.

Ac­cord­ing to com­pa­nies’ fore­casts, to­tal first-half net profit of 25 or­di­nary-steel en­ter­prises will likely surge by 314 per­cent year-on-year, with Bei­jing Shougang lead­ing the pack with a stag­ger­ing 5,523 per­cent jump.

The com­pany’s stock closed at 7.44 yuan on Fri­day in Shang­hai, up 108 per­cent from 3.58 yuan on June 24 last year.

As of July 14, 57 non­fer­rous metal com­pa­nies is­sued earn­ings fore­casts, and 49 of them ex­pect higher first-half prof­its – and six, in­clud­ing Yun­nan Tin, are es­ti­mated to see their prof­its rise more than 10 times year-on-year.

The Non­fer­rous Metal In­dex of the Shang­hai Stock Ex­change has risen more than 8 per­cent this month, out­per­form­ing the bench­mark Com­pos­ite In­dex that rose more than 7 per­cent.

Of the 83 stocks of non­fer­rous metal com­pa­nies that are traded on the sec­ondary mar­ket, 70 have risen this month, with China Min­metals Rare Earth up nearly 27 per­cent.

Ac­cord­ing to Wind In­for­ma­tion, coal com­pa­nies ex­pect strong growth on the back of higher prices. The av­er­age price of the 5,500 kcal power coal at Qin­huang­dao port in the Jan­uary-June pe­riod was 611.21 yuan ($90) per met­ric ton, up 61 per­cent year-onyear.

Coal sup­ply is ex­pected to rise in the short term, but given the out­put re­stric­tions, the in­crease won’t be much, said Zhang Min, an an­a­lyst at Sub­lime China In­for­ma­tion Group in Zibo, Shan­dong prov­ince.

Coal prices will rise a bit the whole sum­mer on high elec­tric­ity con­sump­tion, she said.

Higher prices of non­fer­rous met­als, es­pe­cially cobalt and lithium that are used in the new en­ergy in­dus­try, are ex­pected to boost prof­its in the sec­tor.

Wind’s data show that the av­er­age price of cobalt No 1 in the Yangtze River non­fer­rous mar­ket was 368,004 yuan per ton in the first half of the year, up 83.21 per­cent year-onyear. Prices of such met­als are ex­pected to stay firm in the se­cond half.

But prices of other met­als like cop­per, alu­minum and lead are ex­pected to be un­steady in the se­cond half, said Zhan.

Ac­cord­ing to Wind, the cur­rent price of re­bar with 20-mil­lime­ter di­am­e­ter is 3,829 yuan per ton. Its av­er­age price of 3,666 yuan in the first half was up by 56.5 per­cent year-onyear, and by 30.8 per­cent from the se­cond half of 2016.

“The whole­sale price of steel will re­main at high lev­els, so the profit mar­gin of iron and steel en­ter­prises is ex­pected to re­main high too, on the back of weak prices of iron ore and coke,” said Wang Guo­qing, re­search di­rec­tor at the Lange Steel In­for­ma­tion Re­search Cen­ter in Bei­jing. “The re­bar price peak in the se­cond half is ex­pected to be higher than the price peak of the first half.”

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