More coal, power merg­ers in the pipe­line

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN meng­fan­bin@chi­

China’s coal and power in­dus­tries are ex­pected to see more merg­ers in the sec­ond half of the year, due to State-owned en­ter­prise re­form poli­cies, in­dus­try in­sid­ers be­lieve.

“En­cour­aged by gov­ern­ment poli­cies to re­duce the num­ber of SOEs and pro­mote merg­ers and re­or­ga­ni­za­tions, in­te­gra­tion be­tween coal and power com­pa­nies has be­come an in­evitable trend,” said Zuo Qian­ming, a se­nior coal an­a­lyst from Cinda Se­cu­ri­ties.

At the be­gin­ning of the year, the State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion an­nounced the ac­cel­er­a­tion of merg­ers among steel, coal and power com­pa­nies through ver­ti­cal and hor­i­zon­tal in­te­gra­tion. It stressed that coal and power com­pany con­sol­i­da­tion is par­tic­u­larly im­por­tant when ther­mal coal prices are high and volatile.

The merger plan be­tween Shen­hua Group and China Guo­dian Crop has been al­ready sub­mit­ted to the State Coun­cil for ap­proval, ac­cord­ing to an of­fi­cial at an en­ergy fo­rum on Wed­nes­day.

State Power In­vest­ment Corp is also in con­tact with China Hua­nen Group, said Zhang Likuan, se­nior an­a­lyst at the China Coal Data Ex­change Cen­ter, em­pha­siz­ing that a ma­jor con­sol­i­da­tion of the two sec­tors will be­come a high­light of SOE re­form in the sec­ond half of 2017.

Since April last year, the price of ther­mal coal has risen con­tin­u­ously due to tight­ened sup­ply, as many il­le­gal coal mines were closed as the na­tion sought to re­duce its out­dat-


ed ca­pac­ity in the sec­tor.

The Bo­hai-Rim Steam-Coal Price In­dex, which tracks do­mes­tic ther­mal coal spot prices at six ma­jor ports in north­ern China, surged to 583 yuan ($87) per met­ric ton on Wed­nes­day, about 38 per­cent higher than a year ago.

Most coal power com­pa­nies have felt the pinch, due to the fall­ing in­ven­to­ries and soar­ing fuel costs, ac­cord­ing to a re­port from China Elec­tric­ity Coun­cil, is­sued on July 25.

Most listed power com­pa­nies re­ported losses in the first half of the year.

Shen­zhen Nan­shan Power Co Ltd fore­cast it would suf­fer losses of 56.45 mil­lion yuan in the first half and Guo­dian Changyuan Power Co Ltd’s net deficit was ex­pected to reach as much as 149.5 mil­lion yuan dur­ing the same pe­riod.

Ye Chun, an of­fi­cial from the China Elec­tric­ity Coun­cil, said that coal en­ter­prises, us­ing ther­mal coal as fuel, were ex­pected to stay in the red in the sec­ond half, due to coal prices hov­er­ing at high lev­els.

Merg­ers of coal and power com­pa­nies can pro­duce mu­tual ben­e­fits and re­duce mar­ket risks from fluc­tu­at­ing coal prices, said Zuo.

The merger process will be a com­plex process, said Zhang, adding that var­i­ous kinds of en­ergy busi­nesses need to be merged and their staff should be re­de­ployed in a rea­son­able way.


A man op­er­ates a trac­tor to crush coal, one of the fuels used by the ther­mal power in­dus­try, in Huaibei, An­hui prov­ince.

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