Shenhua shares double on IPO

Coal-to-chemicals just took a further step towards becoming a major source of chemical production once again.

Yesterday, major coal producer Shenhua Energy listed on the Shanghai stock exchange, and saw its shares jump 93% to value it at $173bn. Shenhua is the world’s second largest seller of coal, after the US’s Peabody Energy, and it now becomes the world’s largest IPO this year.

This is part of a process by which huge sums of money are now being raised in China to finance industrial development. As I noted on June 22, PetroChina started the trend by successfully raising $5.6bn, to help finance its proposed 6 new ethylene cracker projects, as well as to develop new oilfields and construct new refineries.

Shenhua Energy is going down the same expansionary route. Having consolidated many of China’s coal companies over the past decade, Shenhua is now looking to invest in a range of coal, power and transportation projects. It aims to produce 200 million tonnes of coal in 2010, compared to 137 million last year, as well as 20,000 megawatts of electricity.

In addition, and critically for the chemical industry, it plans to ramp up its activity in the coal-to-liquids and coal-to-chemicals sectors. It has already partnered with Dow Chemical in planning to build a world-scale coal-to-chemicals complex in Shaanxi province. This intends to use ‘clean coal’ technologies to produce ethylene and propylene, as well as a chlor-alkali unit and a wide range of derivatives.

The chemical business started life by adding value to coal, and the impact of higher oil prices seems to be re-opening this route as an economic source of feedstock for the future. With 66 billion yuan now in the bank post IPO, nobody should doubt Shenhua’s ability to finance its ambitious plans.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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