Coal shares fall further as price controls spread to Shaanxi
Mainland coal shares slumped further yesterday as Shaanxi province followed Shandong in imposing price controls on the fuel, a move that had investors hedging against the risk that Beijing's price control drive will spread.
In a statement issued on Wednesday about macroeconomic measures during the peak energy-consuming summer season, the Shaanxi government said prices for coal used to fire power stations should not be raised before September 15.
'The government hopes that coal enterprises will exercise self-discipline in this regard,' vice-governor Wu Dengchang said. 'Shaanxi Coal and Chemical Industry Group (the province's largest coal producer) especially should take a leading role.'
Coal enterprises, particularly state-owned ones, should not purely focus on maximising profits but should consider the interests of the country, since inflation was the core macroeconomic challenge for the nation, Mr Wu said.
A two-year power tariff freeze and soaring coal prices have resulted in industrywide losses in the sector.
It could have been worse. One-year coal contracts, which provide much of the companies' needs, had been 20 to 40 per cent below spot market prices, said Nomura Securities analyst Donovan Huang.
Shaanxi, one of the country's largest coal producers, mined 170 million tonnes of coal last year, accounting for 7.4 per cent of the national total of 2.29 billion tonnes.
Among Hong Kong-listed mainland coal producers, China Shenhua Energy is the only one that has production in Shaanxi.
According to data compiled by the provincial government, about 60 million tonnes from Shenhua Energy's Shendong mine were produced in the province. The mine straddles Shaanxi and Inner Mongolia.
Yanzhou Coal Mining chief financial officer Wu Yuxiang said the company had no production in Shaanxi, but might begin production there later this year, at its Yushuwan coal project.
Shenhua Energy's share price slid 2.06 per cent to HK$33.20. China Coal Energy, which operates in Shanxi, fell 3.44 per cent to HK$15.74. Shandong-based Yanzhou lost 2.96 per cent to HK$15.08.
A European brokerage analyst said the impact from the policy was limited by the fact that 75 per cent of Shenhua Energy's sales this year had already been secured by long-term contracts.
'I don't expect the price controls to be too harsh when it comes to implementation,' she said.