News Room - Steel Industry

Posted on 30 Jun 2009

Fushan Raises Coal Prices 14% as Steelmakers’ Demand Rebounds

Fushan International Energy Group Ltd., the second-best performing coal stock in Hong Kong, raised prices by as much as 14 percent and may spend at least 3 billion yuan ($439 million) on acquisitions as demand rebounds.

 

The producer of steelmaking coal increased prices for the first time since January to as much as 1,250 yuan a metric ton this month, Executive Director Jimmy So said in a phone interview from Hong Kong yesterday. China’s 4 trillion yuan stimulus spending is boosting demand, and the government’s move to shut small mines is benefiting larger producers, he said.

 

Higher coking coal prices add to evidence that China’s steel demand, the world’s largest, is recovering from what Baosteel Group Corp. has called the most difficult period in 30 years. Steel consumption slumped as the global recession hurt car and property sales, dragging Chinese coal prices down as much as 60 percent last year.

 

“The stimulus plan, together with a rebound in property and car sales, will sustain steel demand,” So said. “A large proportion of China’s stimulus plan will be in place in the fourth quarter.”

 

Fushan, rated a “buy” by seven out of eight analysts, has more than doubled this year. That beats the performance of other coal producers including China Shenhua Energy Co. It gained 1.6 percent to HK$4.47 at 10:26 a.m. local time.

 

The company, owner of three mines in Shanxi province with annual raw coal capacity of 6.3 million tons, plans to buy domestic mines with annual output totaling 8 million tons by the end of 2010, So said. Expansions may take total capacity to 20 million tons, he said, without giving a timeframe.

 

Shanxi Cuts Supply

 

Coal prices plunged 60 percent at the end of November from the peak last year, So said. Prices may rise to 1,400 yuan in the second half because “supply may be cut greatly,” while demand from mills matches last year, he said.

 

Shanxi, China’s largest coal producing province, plans to shut 1,000 small mines with annual capacity below 900,000 tons within two years to improve safety. Small mines in Shanxi account for 40 percent of coking coal output, So said.

 

Chinese steel production may reach 500 million tons this year, similar to last year, beating a 460 million tons estimate from the National Development and Reform Commission, he said. Steel prices in China have risen for 10 straight weeks.

 

“Given that the iron ore and steel industry’s output value accounts for 10 percent of China’s GDP, we believe it would not be in the government’s interest to see a fall in either steel price or volume,” Macquarie Group Ltd. analysts including Xiao Li wrote in a June 16 report.

 

Fushan last year increased sales to larger steelmakers and counts Tangshan Iron & Steel Group, Handan Iron & Steel Group, Taiyuan Iron & Steel Group, Baotou Iron & Steel Group and Wuhan Iron & Steel Group as customers.

 

Profit Forecast

 

Fushan posted a profit of HK$568 million ($73 million) last year, ending six years of losses after it bought the three mines. Coal output from the mines this year would increase to 6 million tons from 5.4 million tons a year ago, boosting profit, So said.

The average price of processed coal sold by the company may stay unchanged at 1,178 yuan a ton this year, he said.

 

Shougang Corp, the only Beijing-based steelmaker, has a 21.8 percent stake in Fushan through two of its units, according to Bloomberg data. The steelmaker is helping Fushan seek coking coal acquisition opportunities in Australia and Canada, So said, without elaborating.