UPDATE 1-Shenhua sees flat 2008 exports despite higher output

By Nao Nakanishi and Judy Hua

HONG KONG, March 17 (Reuters) - China Shenhua Energy Co Ltd (1088.HK) (601088.SS), the world's most valuable coal producer, said on Monday it expects exports in 2008 to be flat despite a 12 percent rise in planned production of the fuel.

President Ling Wen told a press conference that Shenhua, China's top coal exporter, planned foreign sales of 24 million tonnes this year at higher prices, under negotiations with foreign buyers, including Japanese. He gave no price details.

Shenhua, however, expects its commercial coal output to reach 177 million tonnes this year, up from 158 million last year, Chairman Chen Biting said. Its 2008 sales would rise 7.1 percent to 224 million tonnes.

The Asian benchmark thermal coal prices from Australia almost trebled in a year to hit a record of $150 a tonne, free-on-board (FOB) in February, helped by Beijing's sudden curb on exports aimed at easing a power shortage at home.

It is more than double the term 2007 prices of $67.9, hammered out between Chinese coal miners and Japanese buyers.

Shenhua's Hong Kong-listed shares tumbled by as much as 12 percent on Monday after it posted lower-than-expected 2007 earnings on Sunday.

Net profit rose 16.6 percent to 20.58 billion yuan ($2.90 billion) last year from 17.64 billion yuan in 2006, lagging an average forecast for 22.1 billion yuan from 22 analysts polled by Reuters Estimates.

Goldman Sachs said in a research note that the major reason for the earnings miss was lower-than-expected coal prices both at home and abroad. The export prices were only up 4 percent at 398 yuan per tonne, vs Goldman's estimate for 24 percent.

Chen said the average production costs rose to 75.3 yuan per tonne last year from 66.1 yuan the year before, due to higher fuel, power and labour costs. But the company had achieved increases of more than 10 percent in the domestic 2008 term coal prices.

"We expect our cost to rise this year due to inflation, especially in raw materials. However our contract prices increased as well," said chief financial officer Zhang Kehui.

"We are quite confident to maintain stable profitability this year," she said.

BALANCE, FOREIGN INVESTMENT Looking into future, Chen said the domestic prices had further upside potential, with the Australian benchmark prices currently at $131 a tonne, FOB, well above the domestic key prices of $91.3.

"We expect good domestic demand, supported by top consumers, such as power generators, pig iron producers, construction and the chemical sector," said Chen.

Shenhua, the listed arm of China's top coal producer Shenhua Group, said the country's coal demand would stand at about 2.75 billion tonnes, up about 8 percent from last year but roughly in line with the country's expected output of the fuel.

Armed with $8.9 billion cash from its IPO last year, Shenhua has earmarked 39.78 billion yuan capital expenditure for 2008, up a third from 30.05 billion yuan in 2007.