MARKETS

Chinese high speed rail set to slash Shenhua's profits

TRANSPORTATION hold-ups have created a vast coal price disparity between China's interior and coa...

Sadie Davidson

China is actively building high speed and standard rail networks that will lessen the hold-ups and drive up the cost of coal, causing big problems for Shenhua.

A significant part of Shenhua’s profits comes from buying cheap coal from the interior and selling it at a huge profit on the coast.

An influx of supply to the coast could see the company’s profits dwindling.

Shenhua has been able to avoid the country’s major rail issues, which have driven down the profit margins of its biggest competitors.

Other companies have to contend with transport gaps that require coal to be transported by trucks instead of rail, as well as corrupt local officials taking bribes.

Shenhua is the only coal producer to operate its own rail line, eradicating the many issues faced by other companies but it still hugely inflates its prices once the coal reaches the coast.

Sanford Bernstein analyst Michael Parker predicted that Shenhua made a $US1.2 billion ($A1.3 billion) profit from the arbitrage alone last year.

The massive expansion of China’s rail network could see that figure plummet.

High speed rail is moving passenger trains off standard rail lines and making way for an expansion of rail for transporting coal.

According to analysts, within two years new rail lines will carry an additional 842 million tonnes or 39% more than current capacity.

In order to offset the fall in profit and counteract declining coal prices, Shenhua is expanding form its existing base of revenues from power plants, ports and railway lines.

Last year, the company acquired a chemical processing firm and announced plans for a joint venture in US shale gas.

TOPICS:

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

editions

ESG Mining Company Index: Benchmarking the Future of Sustainable Mining

The ESG Mining Company Index report provides an in-depth evaluation of ESG performance of 61 of the world's largest mining companies. Using a robust framework, it assesses each company across 9 meticulously weighted indicators within 6 essential pillars.

editions

Mining Magazine Intelligence Exploration Report 2024 (feat. Opaxe data)

A comprehensive review of exploration trends and technologies, highlighting the best intercepts and discoveries and the latest initial resource estimates.

editions

Mining Magazine Intelligence Future Fleets Report 2024

The report paints a picture of the equipment landscape and includes detailed profiles of mines that are employing these fleets

editions

Mining Magazine Intelligence Digitalisation Report 2023

An in-depth review of operations that use digitalisation technology to drive improvements across all areas of mining production