Coal industry profits drop due to sluggish sales

China's Bohai-Rim Steam-Coal Price Index, which tracks power station coal prices at six ports, rose by 1 yuan (16 cents) a ton this week, the first increase after 13 weeks of declines, according to cqcoal.com, a major coal trading website.

However, the industry outlook for the second half of the year is not optimistic due to lackluster demand and overstocking, analysts said.

The coal industry is facing a large-scale downturn. Shengyin & Wanguo Research data showed that among 40 listed coal companies that have filed interim reports, 28 had negative growth and six posted losses in the first half of 2012.

Total net profit attributable to equity holders of the 40 companies was 51.5 billion yuan ($8.13 billion), a 3.6 percent increase from the same period last year. Total net cash flow was 61.4 billion yuan, a 33.8 percent year-on-year decline.

The industry outlook for the next half is not optimistic, as coal prices at the origin are seeing constant declines, and overstocking has worsened the situation.

Thirty-two out of the 40 companies had an inventory value higher than last year, and 11 had an inventory growth rate of more than 50 percent.

Overall, the range of the coal industry's losses for the first half rose 4.28 percentage points from last year to 17.78 percent.

"Sales revenues fell sharply as a result of sluggish demand," cqcoal.com analyst Li Ting said. "The profit margin for coal industry is very low now, as coal prices are falling but cost of sales are rising."

To support the coal industry, the governments of Guizhou, Shaanxi, Shanxi and other coal-producing provinces have stepped up to rescue the market, cutting taxes and introducing preferential policies.

Guizhou province will levy local coal companies a 4 percent price adjustment fund, 6 percentage points down from the previous standard. Guizhou also cut the additional charge on coal sold outside the province at the beginning of the year.

Shaanxi province also introduced a series of fee-waiver policies, including a 50 percent discount on highway toll fees for vehicles carrying coal in August and September, and a temporary exemption of the coal price adjustment fund starting from August.