CHARLESTON, W.Va. (AP) - As China's appetite for coal is
booming, American investors and businesses are cashing in.
American pension and mutual fund money is being invested in the
Chinese coal industry, which is lucrative but in general has a poor
record for pollution and worker safety.
The biggest Chinese coal company is China Shenhua Energy Co. of
Beijing, which produces about 170 million tons of coal a year from
21 mines and builds power plants. While about 80 percent of the
company's stock is owned by Shenhua Group in Beijing, the rest of
its shareholders reads like a who's who of U.S. investors: Fidelity
Investments, OppenheimerFunds, Merrill Lynch, even the Teachers
Retirement System of Texas.
The performance of Shenhua's Hong Kong-listed shares explains
why U.S. investors love Chinese coal. Shenhua gained almost 65
percent from July through September, while Peabody - a favorite of
analysts who follow U.S. coal companies - lost more than 3 percent
over the same period. Shenhua's initial public offering in Shanghai
in September raised $8.9 billion, a record for mainland China.
Shenhua has noted that its record for worker safety is far above
the average in China, and that it is exploring ways to make coal
U.S. investment in Chinese coal stocks has gone largely
unnoticed. Individual investors such as the retired Texas teachers
probably don't know that's where their money is going, says
corporate governance expert Nell Minow. But whatever their concerns
about Chinese coal companies, investors find poor returns
upsetting, she notes.
"You're really on the horns of a dilemma," she says. "You
can't afford not to be in China."
A spokesman for the Texas pension fund declined to comment.
Even environmental groups that have criticized the U.S. coal
industry for practices such as mountaintop-removal mining have been
largely silent on investing in Chinese coal. The Rainforest Action
Network, for instance, focused on the U.S. in its criticism of
Citigroup Inc. and Bank of America Corp.'s involvement with the
"We've predominantly been looking at the recent boom in
coal-fired power plants domestically," said Matt Leonard, a global
finance campaigner for the group, who added that Chinese coal
should be targeted as well. "We're working to get the banks out of
all coal development."
Along with investors, U.S. coal companies are salivating over
China because of the promise of things they haven't seen much of
lately: Rising prices and the opportunity to increase exports.
Massey Energy Co. of Richmond, Va., and International Coal Group
of Scott Depot, W.Va., recently told investors they plan to
increase metallurgical coal production to take advantage of rising
world demand caused by China's transition from a coal exporter to
an importer this year. And St. Louis-based Peabody spent $1.51
billion last year to buy its way back into Australia, a country it
left several years ago, to export to China.
"In general, they're doing a very smart thing," said Mike
Tian, an analyst with independent investment research company
Morningstar. "That's where the money is."
Companies in Kentucky, the nation's third-ranked producer of
coal, are also trying to figure out how they can capitalize on
China's demand for coal, said Cathy Chao, a trade specialist with
the International Trade Division within the state Cabinet for
She said several Kentucky coal companies are preparing to go on
a trade mission to China. "Most likely they will take a look at
the market and see what opportunities there are," she said.
The most recent U.S. government data illustrates the lure of
China clearly. Exports from the U.S. - the third-largest exporter
of metallurgical coal in the world - were up 25 percent from 2002
through 2006, and an estimated 19 percent just through July.
"There will be opportunities for U.S. metallurgical coal
companies to export more," said Jim Truman, who follows the coal
industry for consulting firm Hill & Associates.
Iron ore pellet maker Cleveland-Cliffs Inc. recently jumped into
the coal business, buying West Virginia and Alabama mine operator
PinnOak Resources. Cleveland-Cliffs said the $610 million purchase
is squarely aimed at exporting metallurgical-grade coal. Peabody
has gone a step further and opened a business development office in
The National Mining Association's Leslie Coleman said both
companies are positioning themselves to be bigger players in the
metallurgical coal businesses because of the demand coming from
China and the rest of Asia. Metallurgical coal is used to make
coke, a fuel.
Faced with increasing opposition from environmental groups, U.S.
coal companies have begun pushing technology designed to reduce
pollutants, including the greenhouse gas carbon dioxide. They've
also been working with electricity producer China Huaneng Group on
FutureGen. The planned $1.5 billion experimental coal-fired power
plant would serve to test carbon capture and underground storage,
among other things.
Cal Kent, who follows the industry at Marshall University's
Center for Business and Economic Research, sees the beginning
stages of U.S. coal companies trying to turn into global companies.
"Where markets are growing, you want to be near them," Kent
said. "It's generally good in a global market to be a global
Associated Press Writer Samira Jafari in Pikeville, Ky.
contributed to this report.
(Copyright 2007 by The Associated Press. All Rights Reserved.)