UPDATE 2-Shenhua heads for strong Q4 as China rebounds

* Q3 profit 9.1 bln yuan vs SHK f'cast of 9.83 bln yuan

* Says Q3 summer peak season boosted coal prices

* Analysts see stronger Q4 on strong economic outlook

* Shares end down 0.27 pct before results, up 19 pct in Q3

(Recasts, adds analyst comment, details)

By Sui-Lee Wee

HONG KONG, Oct 27 (Reuters) - China Shenhua Energy (1088.HK), the world's most valuable coal producer, is heading for its strongest profit growth this year as it cranks out more coal at higher prices to meet demand to feed a rebounding China, the world's top coal consumer.

Shenhua, which produces thermal coal to fuel China's power plants, is highly exposed to the recovery in electricity demand in the world's third largest economy, which has been given a boost by government stimulus spending.

Across the sector, analysts prefer Shenhua for its exposure to contract sales and operation of its own railway network to transport coal, giving it higher earnings visibility and room to control its costs.

"Shenhua's fourth quarter would be impressive as the Chinese economy is moving to a phase of more stable growth," said Michael Yuk, an analyst with Sun Hung Kai Financial.

"Shenhua is positioned differently from the other coal miners as 90 percent of its sales come from contract sales, so there's no volatility in its prices," he said.

Shenhua (601088.SS), China's top coal miner, said its July-September net profit rose 15 percent to 9.1 billion yuan ($1.33 billion) based on international accounting standards, up from 7.89 billion yuan a year earlier but below a forecast by Sun Hung Kai Financial of 9.83 billion yuan, one of the few analysts to estimate quarterly earnings for Shenhua.

The profit was Shenhua's highest ever on a quarterly basis, and its rise contrasted starkly with U.S. coal miner Peabody Energy Corp (BTU.N), which posted a sharp drop in third-quarter profit. [ID:nN19374044]

Shenhua's net profit is expected to leap 50 percent in the fourth quarter to 5.9 billion yuan, up from 3.9 billion yuan, according to consensus forecasts from 20 brokerages on Thomson Reuters I/B/E/S.

In the fourth quarter of 2008, higher costs and sluggish demand squeezed margins for Shenhua.

"As the third quarter was in the summer peak season for coal consumption, the coal inventory and spot price basically remained stable and the domestic supply and demand of thermal coal was balanced in general," the company said in a statement on Tuesday.

STRONG OUTPUT, SALES

Shenhua churned out 15 percent more coal to 158.8 million tonnes in the first nine months of this year and increased its sales by 10 percent to 189.6 million tonnes. Coal accounts for up to 80 percent of Chinese power production.

The weighted average price for coal sales rose 4.7 percent to 387.5 yuan per tonne in the third quarter.

China's power generation has risen for four months in a row on hotter-than-usual weather and after government economic stimulus measures helped put assembly lines back in motion.

By the end of September of 2009, the national coal inventory was 187.6 million tonnes, which remained stable as compared to that at the beginning of 2009, Shenhua said.

Before the results, Shenhua's stock fell 0.27 percent to HK$36.25. Shares in Shenhua, valued at more than $100 billion, rose 18.6 percent in the third quarter, outperforming its smaller rival Yanzhou Coal Mining (1171.HK) (600188.SS), which gained 4.9 percent and Hong Kong's benchmark Hang Seng Index .HSI which rose 14 percent in the same period.

Unlike Shenhua, Yanzhou Coal, which relies more heavily on the spot market, reported on Tuesday that its net profit fell 61 percent in the third quarter to 1.12 billion yuan, based on Chinese accounting standards. [ID:nHKF080480] (Additional reporting by Tom Miles in Beijing) (Editing by Doug Young and Jon Loades-Carter)