China Shenhua Energy Co, the nation's biggest coal producer, said 2006 profit rose 12 percent after it increased production to meet higher demand from power generators and steel makers.

Net income climbed to 17.5 billion yuan (2.3 billion U.S. dollars), or 0.965 yuan a share, from 15.6 billion yuan, or 0.937 yuan, a year earlier, the Beijing-based company said in a statement late Friday. The median estimate in a Bloomberg survey of 11 analysts was for 19.2 billion yuan in profit. Sales rose to 64.2 billion yuan from 52.2 billion yuan.

Shenhua has benefited from a surge in demand in China, the largest producer and consumer of coal. The economy expanded 10.7 percent in 2006, spurring consumption of the fuel, used to generate two-thirds of China's power. Shenhua has reserves second only to Peabody Energy Corp, the world's biggest publicly traded coal producer.

"Shenhua is the best proxy for China's coal market," Michael Lee and Elvis Au-Yeung, Hong Kong-based analyst at HSBC Securities Asia Ltd, wrote in a research note last week. The company "offers investors a rare opportunity to capture the lucrative upstream and downstream markets in China."

Shares of Shenhua closed unchanged on Friday at 20.15 HK dollars (2.57 U.S. dollars). The stock has gained 51 percent in the past year, outstripping the 25 percent increase in the benchmark Hang Seng Index.

The company's coal sales last year climbed 18.5 percent to 171.1 million metric tons, while commercial coal production rose 12.5 percent to 136.6 million tons.

Coal producers and power generators in China agreed to an increase in coal contract prices up to 10 percent in January. Prices are 25 yuan to 30 yuan a ton higher than a year earlier, Xie Juchen, president of China Zhongneng Power Industry Fuel Co, said earlier.

Shenhua will raise coal prices under long-term contracts by at least 15 yuan a ton.