Macquarie NDRC coal analysis - interesting points (Yeeman Chin)

=> The NDRC published their analysis on the coal industry in 1Q09 on the website, with some interesting points:

Market balance in China
=> They view the market as "roughly balanced leaning towards a surplus".
=> They expect this surplus to continue into the rest of the year.

Production and distribution
=> Raw coal production of "medium to large scale" producers was 602m tonnes, up 6.3% YoY.
=> Total coal throuput on the national rail network was 307m tonnes, down 8.5% YoY and 4.7% QoQ.
=> Port dispatch volumes was 107m tonnes, down 17.5% YoY and 1.3% QoQ.
=> Notice that total production was up whereas rail throughput and port dispatch is down.
=> This has two possible explanations:

1) Production numbers are not reliable because some small mine production goes unreported and thus the headline growth number is overstated; and
2) the coal is not getting out for some reason?

Profitability of the industry
=> Total profits for large coal mining enterprises was Rmb18.1bn, down 17% YoY.
=> Interestingly, after stripping out Shenhua Group and China Coal Group, profits are down ~40% YoY.
=> The article also commented that more than half these producers are "barely profitable" .
=> With further weakness in the coal market and increased policy-related costs and higher fixed costs, profitability is expected to decline further.
=> This is interesting because as it suggest that the downside for prices is somewhat limited.
=> People often focus on the strong profitability of companies like Shenhua, China Coal, Yanzhou but they seem to be the exception rather than the norm in the industry.

Other comments
=> Consumption was 674m tonnes, down 4% YoY but up 5.4% QoQ.
=> Consumption in the power industry fell 8% YoY and rose 8.7% QoQ to 378m tonnes.
=> Coal consumption in steel industry was 109m tonnes, up 2% YoY and 15.7% QoQ.
=> Usage in cement was 70m tonnes, up 7.6% YoY but down 24.7% QoQ. Coal use in chemicals was 34m tonnes, up 2.3% YoY and 9.7% QoQ.
=> Imports were up 21% YoY and 63% QoQ to 13.59m tonnes.
=> Exports fell 28% YoY and 24% QoQ to 7.38m tonnes.
=> Net imports increased by 7.6mt QoQ and 5.15mt YOY to 6.2m tonnes.
=> The average ex-mine price for large mining enterprises was Rmb452/t in 1Q09, up 13.5% YoY but down 3.3% YoY.
=> Total inventories was 206m tonnes, up 20.7% YoY but down 12.7% since last December.
=> Inventories at coal mines was 48m, up 27.8% YoY but down 5.7% QoQ.
=> Port inventories were 13.16mt, down 10% YoY and 33.4% QoQ.
=> IPP inventories were 27.94m tonnes, up 23.3% YoY and down 35.5% QoQ.

Link to full article (in Chinese): http://www.ndrc.gov.cn/jjxsfx/t20090427_274995.htm