(Yicai Global) Aug. 4 -- Two coal mines of China's largest coal producer China Shenhua Energy Company Ltd. [SHA:601088] will temporarily discontinue or reduce production from this month, and thus a total annual output reduction of about 22 million tons is expected.
The main reason for the two mines' discontinued or reduced production is the problematic land acquisition, and it cannot determine the recovery time at present, China Shenhua announced yesterday.
Both mines, the Haerwusu Open-Pit Coal Mine and Baorixile Open-Pit Mine, are located in northern China's Inner Mongolia Autonomous Region.
With an approved capacity of 35 million tons per year, Haerwusu Mine registered coal production of 27.4 million tons last year and approximately 15 million tons from January to July. It has ceased to mine and is expected to reduce annual output by up to 13 million tons.
Baorixile Mine, with an approved capacity of 36 million tons per year, recorded coal production of 25 million tons last year and about 15.7 million tons from January to July this year. The mine maintains a small amount of coal production, whose annual output is expected to decrease by up to 9.1 million tons.
China Shenhua said the above decision to discontinue and reduce production of the two mines will result in a net profit drop of USD451 million (CNY3.03 billion) this year, representing 13.3 percent of the total net profit of the company for last year.
However, China Shenhua said that through a series of measures, it will be able to control the coal output reduction within 20.6 million tons and coal sales reduction within 11.5 million tons this year.
The decline in coal production of China Shenhua, China's largest coal producer, may affect the supply and demand situation in China's domestic coal market. From last year's third quarter, China's domestic coal sales prices began to strongly rebound, and coal prices have remained high this year. Total coal industry profits rose nearly 20 times in the first half of the year, with profitable companies being large producers.