Puda Coal (NYSE:PUDA) produces coal used in the manufacture of steel in the the People's Republic of China. The coal, known as coking coal, is used as a raw input to make steel. Puda is vertically integrated and operates coal mines as well as coal washing facilities - a necessary part in order for the coal to be used in steel. The rise in demand for steel for new constructions in China has also increased demand for coking coal.
For the full year 2010, Puda reported a total revenue of $325M. This was an increase from the $214M announced in 2009. In terms of net income, Puda reported $24M in 2010 and $5M in 2009.
Puda's primary business of washing coal is necessary only to create coking coal. As a result, the demand for steel, and so for coking coal, are the main determinant of the demand for Puda's washing facilities. In order to decrease this dependence, Puda has diversified into operating coal mines altogether. This does allow the company to move away from a single source of revenue. Yet, a decrease in the construction market in China would vastly decrease the demand for steel and so the demand for coking coal. Because coal washing is only necessary for making coking coal, this would have a direct impact on Puda. By contrast, Puda is well positioned to continue to grow as long as the demand for steel remains strong in China.