Coal-chem, one of the future growth engines for ShenhuaMr. Qing Huang, the director of secretary to the board of China Shenhua,attended our 2017 dbAccess China conference in Beijing in this week. Mr.
　　Qing Huang delivered his views on several key topics including supply sidereform and coal price and he spent most of the time on coal-chem business,which seems to be a new growth of Shenhua in the future. Below are the keysummary of the investor meetings.
　　Total coal industry capacity will decline to 3.9btpa by 2020Mr. Huang believes total capacity of China coal industry will likely decline fromcurrent 5btpa to 3.9btpa in the end of 2020, by 1.1btpa which includes800mtpa low efficiency capacity cut directly and another 500mt capacity to bereplaced by 200mt advanced capacity.
　　276 day policy should continue to implementThe 276 day policy should continue to be implemented when the period ofheating supply service over. In spite of that, Shenhua believes coal priceshould not be too high in 2017, for the breakeven coal price of IPPs isRMB600/t.
　　Coal chem., an economical and environmental friendly businessIn order to decrease the oil/gas dependency, coal-chem is a great solution andtrend to China. Coal-chem business is likely to be the key engine of China coalindustry development in the future. Coal-chem business is environmentalfriendly. Hazardous substances produced from burning coal in powergeneration will all be converted to valuable chemical products like sulphur andnitrous acid in coal-chem processing. Coal-chem business is also economicalwith a breakeven oil price at c. US$40-60/t. （US$40/t for olefin, US$45-50/t fordirect coal liquefaction, and US$55-60/t for indirect coal liquefactiontechnology）。
　　Shenhua may inject CTL business in this yearShenhua has its CTL business under incubation at parent company and mayinject it to the listed company as it may be one of the next growth drivers.
　　Based on company’s scale and cash flow from operation, current capex levelof Shenhua is relatively low for lacking of approvals for developing new coalmines and desires of further investments in railway and ports. As such, coalchembusiness investments are justified. However, Shenhua will still fullyrespect the minority shareholders’ interests about the potential asset injection.