China Shenhua Energy Co, the world's biggest coal producer by market value, cut capital spending by 16 percent for 2009 because of falling power demand amid the global financial crisis.

The company earmarked 29.9 billion yuan (US$4.37 billion) for capital expenditure in 2009, down from 35.8 billion yuan a year ago, the company's annual report said.

Its shares tumbled 5.7 percent yesterday in Hong Kong trading after the firm posted an unexpected drop in quarterly net profit as higher costs and sluggish demand squeezed margins.

Shenhua's President Ling Wen told reporters at a media briefing that the firm has signed agreements with the country's power plants for domestic long-term contract sales, but declined to disclose the price.

"The contracts so far that have been signed are very satisfactory from our point of view," Ling said. "Whether it is from a quantity or price point of view, we are confident that our sales target will be met."

Shenhua has agreed to offer state-owned conglomerate China Resources Group 85 million tonnes of thermal coal over the next five years, Xinhua news agency reported on Saturday.

China's coal miners and power plants have been embroiled in a dispute over annual prices this year. Coal miners have come under pressure to lower prices by the country's power generators, which, in recent months, have sought out coal at cheaper prices from abroad, worsening the oversupply at home.

But Ling said "the increase in imported coal will not affect the Chinese market," as the volume of imported coal is still very small relative to China's total coal consumption.

Shenhua's sales in the first quarter of this year are "better than our expectations," Ling said, but he did not give details.

Sales from China account for about 91 percent of the firm's total coal sales.

China's coal miners are grappling with weaker prices as lower industrial activity in the country crimps demand for the fuel.

(Shanghai Daily March 31, 2009)