Faced with falling prices and weak demand in a slowing economy, coal companies will find it an opportune time for mergers and acquisitions, industry experts said on Tuesday. (Photo/China Daily)
Faced with falling prices and weak demand in a slowing economy, coal companies will find it an opportune time for mergers and acquisitions, industry experts said on Tuesday.
The National Energy Administration said the government will offer unspecified financial support for the process to raise the industrial concentration level and promote the development of small players that are losing money.
Zeng Hao, a coal analyst with consultancy Fenwei Energy Co, which is based in China's biggest coal-producing region of Shanxi province, said that government aid will help the M&A process.
In response to the NEA's comment, shares of major coal companies soared on Tuesday. China Coal Energy Co Ltd, the listed arm of the China National Coal Group Corp, gained by the 10 percent daily limit to 11.24 yuan ($1.82). China Shenhua Energy Co Ltd, the listed arm of the country's biggest coal producer Shenhua Group, also closed limit-up at 26.29 yuan.
Market rumors have said these giants will merge. But Zeng said that the possibility of such a tie-up is low because the companies do not compete in either the domestic or foreign markets, so there is little rationale for a merger.
Calls to Shenhua were unanswered, and a secretary in the managing director's office at China Coal Energy said he knew nothing about any such merger. The NEA press office said there was no official information on the deal.
Liu Dongna, a coal analyst with Shandong-based consultancy Sublime China Information Group Co Ltd, said that the rumor has been going around since 2008.
"It's a good time for them to merge because of falling coal prices," she said. "The government tried to help the market last year by cutting taxes and restricting coal imports. But nothing much happened.
"Market-driven mergers and acquisitions will remake the industry and support its development," she said.
According to Liu, many small coal companies are quite willing to merge with diversified mining companies.
An anonymous industry source told China Daily that China Coal Energy's profits are low and the quality of its mining resources are far inferior to Shenhua's. And up to 80 percent of China Coal Energy's revenue depends on coal, severely limiting its growth potential in a gloomy market.
"Only Shenhua has ability to help it. There is still a possibility of a merger between the two if the government wants to do it," the source said.
