In Commodity News 22/04/2015
Reports of the death of China’s coal industry seem to have been exaggerated. Share prices of the country’s top coal miners have made double-digit gains over the past six weeks, outshining rival producers including U.S.-listed Peabody Energy.
Shares in China Coal Energy, China Shenhua Energy and Datong Coal Industry have all climbed by around 20 percent or more since March 1, despite a roughly 17 percent slump in Asian benchmark coal prices CO-FOBNWC-AU over the same period due to weaker demand. Plans to lower the value-added-tax (VAT) on coal sales are underpinning the shares, traders said.
“The VAT cut is apparently good news for China’s coal industry. The expected 4 percentage point cut will relieve a lot of pressure from domestic coal firms as they do not have many advantages competing with foreign mines in either price or quality,” said Zhang Xiaojin, analyst with Everbright Futures in Zhengzhou city in central China.
The share gains contrast with the beleaguered tone of overseas coal producers such as Peabody Energy, Australia’s Whitehaven Coal and Indonesia’s PT Adaro Energy , all of which have shown share declines.
Still, Chinese coal shares have underperformed the country’s broader stock market due to diminished investor appetite following China’s pledge to rely more on other fuel sources than coal over the longer term. Amid widespread environmental objections to the cheap but polluting fuel, the lustre surrounding coal mining shares may be short-lived. “The VAT cut will not change the current imbalance between supply and demand,” said Zhang.
