It’s tempting to view a merger between giant state-owned Chinese companies as a strictly internal affair. But make no mistake: The combination of the country’s largest coal miner with one of its top five power generators will have ramifications around the world.
To see why, it’s worth looking at how the integration with electricity producer China Guodian Corp. will change miner Shenhua Group Corp.Shenhua’s size and reach give it a crucial position in China’s internal power market.
It sold almost 400 million metric tons of coal last year, equivalent to about two-thirds of the amount used in power generation in the U.S. It owns a rail network that could reach from New York to Miami, stretching from the Mongolian border, through the Shaanxi coal belt, to Huanghua port on the Yellow Sea.
It’s clearly the stronger of the two companies: Net margins at listed unit China Shenhua Energy Co. dipped below 10 percent just once over the past decade, coinciding with the only occasion when Guodian’s margins edged above 2 percent.
Shenhua’s influence in setting China’s domestic coal prices is so great that it’s often been the target of ire from generators, which regard it as profiteering at their expense. Looking at the gap between what it costs Shenhua to produce coal and the amount it makes from selling the stuff, the power stations seem to have a point.
For the rest of this column: https://www.bloomberg.com/gadfly/articles/2017-08-29/chinese-coal-global-tremors