China Trade Information

In view of the tremendous potential in China’s coal industry, foreign investors have been showing keen interests to cooperate with the local governments and enterprises in exploiting China’s coal resources.

Asian American Coal Inc (AACI), formed by some U.S. energy firms and financial institutions, established two joint venture companies to develop two coalmines in West China’s Shanxi Province.

The Shanxi Provincial Coal Industry Bureau in July approved a joint venture of AACI, Shanxi Asian American-Daning Energy Co, to develop Daning coalmine, with an estimated annual output of 4 million tons and an investment of US$230 million.

The other joint venture has also been set up to develop Gaohe coalmine in the province, which is expected to be approved to start production in 2009.  AACI will invest US$300 million for this project, and the future production will reach 6 million tons annually.

Meanwhile, South Africa-based Sasol, a leading company in refining fuel from coal, and Shenhua Group have entered into an agreement to set up two coal-to-oil plants with a total investment of US$24 billion. The combined annual output of two plants will reach 7.2 million tons of oil.

As China increasingly emphasizes energy savings and environmental protections, it provides a good opportunity for foreign companies to bring the advanced technologies to China.

China’s coal imports for August jumped 70.3 percent to 4.02 million tons, preliminary data from the General Administration of Customs showed Monday.
 
That means China, the world’s largest coal producer, has retained its status as a net coal exporter for the second straight month.
 
But for the first eight months, China remained a net coal importer. It imported 34.99 million tons of coal for the January-August period, up 51.7 percent from the same period a year ago. Its exports for the first eight months fell 19.8 percent to 33.53 million tons.
 
China has been trying this year to discourage exports of coal and oil to maximize domestic use of its energy resources.

Pacific Basin Shipping Ltd., a dry- bulk operator that agreed to an initial $33 million investment in a Chinese port in July, may increase spending 30-fold to add more terminals in the country as imports of coal and ore surge.

“We have ambitions to grow our port business,” Deputy Chief Executive Officer Klaus Nyborg said in a Sept. 14 interview in Hong Kong. The company may invest up to $1 billion, he said without giving a time frame.

China’s construction boom helped double rates for shipments of raw materials, quadrupling first-half profit at Pacific Basin. Buying into terminals may help the shipping line weather any fall in rates caused by a drop in demand or expansion of the global fleet.

“Operating ports is a more stable business than shipping,” said Paul Chan, who helps to manage about $1.8 billion at Invesco Asia Ltd. in Hong Kong. “The question is whether the company can get hold of strategic ports.”

Pacific Basin agreed in July to buy a 45 percent stake in a $74 million terminal venture in Nanjing, eastern China. It also has a venture in the United Arab Emirates.

The company could raise $1 billion for investments from cash on hand, loans against its fleet and other sources, said Nyborg, 43. Last year, the company’s capital expenditure totaled $286 million, according to Bloomberg analytics.

“The balance sheet allows us to expand if we find attractive investments,” he added.

Shares Double

Pacific Basin shares have more than doubled this year, beating a 23 percent gain in the city’s benchmark Hang Seng Index. The stock closed unchanged yesterday at HK$13.16.

China has become the world’s biggest user of steel, rubber, coal and other commodities because its economy has grown at least 10 percent in each of the past four years. The country accounts for about a quarter of global dry-bulk demand, Nyborg said.

“There hasn’t been sufficient investment in dry-bulk terminals” in China, he added. “The development of infrastructure and industries in China gives us confidence about strong growth in the years ahead.”

China Merchants Holdings (International) Co., the owner of stakes in the country’s five largest container ports, also plans to invest in more dry-bulk terminals in China, Chairman Fu Yuning said in July.

China Cosco

China Cosco Holdings Co., Asia’s biggest container-shipping line, agreed earlier this month to buy the world’s largest fleet of dry-bulk ships from its parent China Ocean Shipping (Group) Co. The shipping line will buy 412 vessels for 34.6 billion yuan ($4.6 billion).

Chinese demand has helped cause the Baltic Dry Index, a measure of chartering rates for different sized vessels, to almost double over the past year. It gained 0.2 percent yesterday to 8,313.

China’s coal imports surged 52 percent to 35 million tons in the January-to-August period. Steel consumption may rise 12 percent to 446 million metric tons this year and to as much as 520 million tons by 2010, the China Iron and Steel Association said last month.

Global dry-bulk trade will likely rise 5 percent a year from 2007 to 2010, mainly driven by demand from China and India, Credit Suisse Group said in August.

New Vessels

Increasing orders for new vessels and the conversion of oil tankers into bulk carriers may bring down dry-bulk rates. Pacific Basin, Mitsui O.S.K. Lines Ltd. and other lines are signing more long-term contracts to lock in rates. Pacific Basin has signed deals in excess of 10 years, Nyborg said.

“There is a concern that supply will increase starting in the second half of 2008,” said Geoffrey Cheng, a Daiwa Institute of Research (HK) Ltd. analyst. “That will put pressure on rates.”

The company has contracted out 83 percent of its handysize capacity and 95 percent of handymax capacity for 2007 at fixed rates as of June 30. For 2008, it had rented out 28 percent of its handysize capacity and 31 percent of its handymax fleet.

The company operates 73 handysize and handymax ships and has 15 more on order. Handysize ships have a deadweight of between 10,000 tons and 30,000 tons and handymax vessels have a deadweight of between 30,000 tons and 50,000 tons, according to the Web site World Trade Ref.

Shougang Group <000959> started to construct the high-phosphorous iron ore project in Hubei on Sep. 15, in which it will invest RMB 8 billion, China’s official xinhuanet.com reported.

Shougang will be the first firm to develop high-phosphorous iron ore with the leading dephosphorization technology. As the high-phosphorous iron ore in west region of Hubei has higher portion of phosphor and crystallite structure is quite complex, it has not been developed since 1955 though it has a potential storage of 3.9 billion tons. With the dephosphorization technology, the iron ore in Yichang could be a sufficient supply for Shougang, said its board chairman Zhu Jimin.

The project can realize sales revenue of RMB 10 billion after it starts operation. The Project Stage 1, located in Yichang in Three Gorges Dam region, has a mining capacity of 600,000 tons. RMB 300 million will be invested in the Stage 1, which will occupy an area of 33.33 hectares and is planned to operate in July, 2008. The Project Stage II could mine 150,000 tons iron ore. The whole project is expected to mine 10 million tons iron ore annually.

China steel industry is growing quickly in recent years and China imports 50% iron ore from Brazil, Australia, and other countries. Price of iron ore keeps increasing. Many steel manufacturers, including Shougang, are seeking domestic iron ore to reduce costs.

Sun Microsystems Inc, a computer network infrastructure and service solutions provider, revealed its goal to make China its largest market in the region within the next three years. In a recent interview, Sun’s senior executive expressed the company’s intention to double its revenue in China.

Sun Microsystems acknowledges China to be an emerging market with unlimited potential. The company has plans to increase its stakes within the country. In a bid to achieve its goal, Sun Microsystems will be securing a series of joint ventures with existing resellers and distributor in the industry.

In addition, the company recognizes the importance of strong ties with the Chinese government and desires to forge a partnership with China’s Ministry of Information Industry and the state research and tertiary institutes, for the development of global open document formatting standards and privacy laws regulations.

With the introduction of new products in the Chinese market, the company projects a double digit growth in revenues for the coming year. To ensure that the company is in line with its aim, its offices in China, Taiwan and Hong Kong will be increasing the headcount by 5% to 10%.

In the first six months of the year, Sun’s total revenue from the Asian Pacific region grew by 11%, amounting to US$2.37 billion. Meanwhile global revenues totaled US$13.87 billion.

In the second quarter of the year, Suns reported encouraging findings with global total revenues of US$3.566 billion, a 7% increment from the same period in 2006.

In the global market, Google has proven to be an unparalleled competitor in the industry. However, a recent report released by China IntelliConsulting Corp., revealed that the presence of Google in China only has a 23% coverage of the market share, posting a 1.1% decline from the previous year.

Despite heavy investments injected into the Chinese market, Google lost out to local Baidu.com, Inc<BIDU>, a Chinese-language Internet search provider, which dominates the market share in the country at 69.5%, a reported 7.6% growth from a year ago.

According to the report, whilst Google continues to capture the younger audiences in China, many of the more mature users are gradually turning their attention to Baidu.

Across the board, other search engines also experienced a drop in its market share. Chinese company, Sohu.com dropped by 1.4% to a current market share of 1.8% and Yahoo China, operated by Chinese Alibaba.com Inc, had a decline by more than half, falling 2.9% to 2.3%.

Although Google’s performance did not produce satisfactory results, a recent survey carried out by a Chinese institute produced positive feedback, with 65.3% of the respondents commenting that Google’s Chinese search engine had improved.