Yanzhou Coal is shifting its focus to constraining costs this year rather than expanding production. Costs rose disturbingly last year, with selling, general and administrative expenses up an alarming RMB405.8m (53.4%) to RMB1,165.4 million (US$140.8m). Selling, general and administrative expenses were equivalent to RMB33.3 per tonne (US$4.02/t) of coal sold last year.
The main reasons for the increase were:
1. An increase in wages of the management and employee benefits by RMB88.832 million.
2. An increase in pension fund by RMB68.295 million.
3. An increase in wages surcharge by RMB40.672 million due to the introduction of supplementary medical insurance fund and an increase in wages.
4. Increase in provision for bad debt by RMB63.696 million.
5. An increase in mineral resources compensation by RMB42.522 million.
Unit operating costs also increased to RMB94.5/t (US$11.42/t), up 4.3% from RMB90.6 in 2001. This was largely the result of an increase in washed coal sales as a proportion of total sales, and increased wages and employee benefits. Coal sales are forecast to be 38 Mt for 2003, up 8% from 35.05 Mt in 2002. Yanzhou expects all of the growth in sales volume this year to be in the domestic market. Exports are expected to remain close to last year’s level of 14.5 Mt.
The renewed focus on the domestic market is not surprising given that average domestic prices increased 15% in 2002 while export prices stagnated. This year Yanzhou Coal expects domestic prices to remain stable while average export prices will be down significantly.
The increased focus on domestic markets has prompted Yanzhou Coal to approve the construction of a barge port on lake Weishan to cut transport costs to the neighbouring Jiangsu Province and the Shanghai area. The Jining Sihe Coal Port will be located adjacent to the Jining III longwall mine.
Construction of the 3 Mtpy phase one facility is scheduled to commence immediately and be completed by December 2003. Depending on the success of the first phase of the port, Yanzhou Coal may initiate a feasibility study on phase two expansion of the port capacity to 5 Mtpy.
