Coal firms tumble on output order, price cuts
Shares of mainland coal producers fell yesterday after Shandong province ordered producers to raise their coal output and cut their prices.
The move raised fears that the mainland was reinstituting command economy-style volume and price controls just three years after the central government fully liberalised the coal market in 2005.
Petroleum and electricity prices have always been under state control to help manage inflation, and prices have been kept at below international market rates in the past two years.
In a circular, the Shandong provincial government ordered producers to churn out an additional 2.56 million tonnes of coal each month from next month to September.
The selling price for this extra coal must be at least 10 yuan (HK$11.28) below this month's spot market price, yesterday's circular said.
Shandong's annual coal demand equals 200 million tonnes, while output stands at 150 million tonnes, according to Yanzhou Coal Mining company secretary Zhang Baocai.
Shares of Yanzhou Coal tumbled 8.9 per cent to HK$15.54, while China Coal Energy dived 6.1 per cent to HK$16.30 and China Shenhua Energy fell 4.9 per cent to HK$33.90.
China Shenhua's spokesman said he had not heard that any province other than Shandong had launched price control policies.
The circular came four days after Beijing issued an edict requiring local governments to raise coal output by speeding up safety audits of previously closed small mines so they can resume production.
Beijing also wants power generators to keep at least a 15-day coal inventory during the summer peak power demand season to prevent blackouts.
Five provinces have less than the alarm-level seven-day stockpile of coal, according to the State Electricity Regulatory Commission. High coal prices and a two-year power tariff freeze showed small operators lacked the incentive and means to keep a normal level of coal stock.
Mr Zhang said Yanzhou Coal would have to shoulder 20 per cent of the additional production requirements in Shandong, or about 500,000 tonnes a month.
'This would mean about 1.5 million tonnes for the three months, and the 10 yuan price reduction implies a revenue loss of about 15 million yuan,' he said.
Yanzhou is forecast to post a net profit of 5.38 billion yuan this year, the mean estimate of 24 analysts polled by Thomson Financial.
Mr Zhang believes the provincial intervention was mainly driven by political pressure before the Olympic period. He said price controls were difficult to implement because 25 per cent of Shandong's coal supply came from other provinces.
Prices for coal, other than the 2.56 million-tonne increment, were not controlled, he said.
Guotai Junan Securities analyst Martin Wang said investors used the negative news to dump the stock and take profit after sharp gains in its share price in the past two months.
He said the jump in international and mainland coal prices might not be sustainable, and predicted that next year's price would be 5 per cent to 8 per cent lower than this year.
'In the international market, speculative funds looking for safe havens have been pushing up commodities prices,' he said. 'Once the US dollar recovers, a lot of money will [shift] out of commodities.'
Lost income
Yanzhou Coal expects the price cut to cause a revenue loss of, in yuan: 15m yuan
