China Shenhua Energy Co, China's largest coal producer, posted record quarterly profits on higher sales and output and said it expects a fledgling recovery in China and the region to boost demand.

April-June net profit was 8.98 billion yuan ($1.3 billion), up 12 percent from a year earlier and above a consensus forecast of 7.95 billion. The profit was the highest on a quarterly basis

The figures come in stark contrast to the recent bleak results from other Chinese coal miners, including Yanzhou Coal, which reported a 48 percent fall in first-half profit on lower selling prices for its coal.

Shenhua, which produces thermal coal to fuel China's power plants, expects domestic demand for power to increase in the second half of this year. It said demand in Japan, South Korea and Taiwan would also strengthen as their economies recover.

It is expected that in the second half of this year, the domestic demand for thermal coal will further increase, the company said in a statement.

Demand for thermal coal in Asia Pacific will recover moderately in the second half of this year, and the supply of thermal coal will remain stable and increase to a small extent. since the company began reporting four times a year in 2007.

Shenhua plans to spend 30 billion yuan to double annual output to 400 million tonnes by 2015, propped up by strong demand from China, the world's top coal consumer. [ID:nLA301459].

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

BULLISH PRODUCTION

Shenhua's domestic coal sales volume rose 12 percent to 117 million tonnes in the first half. Coal sales rose 7 percent to 123.1 million tonnes in that period.

The weighted average price for coal sales rose 10 percent to 389.2 yuan per tonne in the first quarter, compared with 353.5 yuan per tonne a year earlier.

But the unit production cost of self-produced coal rose an even steeper 16.7 percent to 86.6 yuan a tonne in the first half due to increases in materials, fuel, power and repair costs and higher wages.

Shenhua's bullish production targets contrast with those of most U.S. coal producers such as Peabody Energy Corp., which have resorted to production cutbacks in a bid to match plummeting demand due to the global economic crisis.

Before the results, Shenhua's stock fell 0.8 percent to HK$30.90. Shares in Shenhua gained 63.5 percent in April-June, outperforming Yanzhou, which rose 24 percent, and the benchmark Hang Seng Index .HSI, which gained 35.4 percent.

Shenhua had already reported its preliminary first-half figures according to Chinese accounting standards on Aug 7. [ID:nHKG191970].

(Editing by Valerie Lee, Doug Young and Lin Noueihed)

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