Anti-inflationary coal-price freeze could hurt share prices
Beijing has ordered major coal producers to freeze prices to help the nation fight inflation, but an analyst said the surprise move would hurt investment sentiment.
The price bureau of the National Development and Reform Commission (NDRC) said yesterday after meeting major industry players that they would keep prices stable. They included Shenhua Group, parent of listed China Shenhua Energy; China National Coal Group, parent of listed China Coal Energy; and producers in Inner Mongolia, Shanxi and Henan provinces.
The commission told them not to raise prices of annual contracts signed earlier with customers, as well as those of spot market sales. It did not give a time frame.
Producers that had reneged on their annual contracts and raised prices must refund additional price rises to customers by the end of this month, the commission said. 'Inflation management is currently a significant task,' the statement quoted an unnamed commission official as saying. 'A rising coal price not only affects the operation of downstream industries, it also augments the public's inflation expectation. If coal enterprises do not heed the directive, the NDRC will discipline them.'
Mainland consumer inflation was 3.1 per cent in May, the highest in 19 months, surpassing Beijing's 3 per cent annual target. The statement cited Shenhua Group, the nation's largest coal producer, as having said it would follow the government's order and take a leading role in keeping prices steady.
CCB International analyst Karen Li said she would not cut her estimate on Shenhua's net profit this year as her estimate for its full-year coal selling price was in line with current prices, but uncertainty over the policy's duration would hurt coal producers' share prices.
Shenhua's spokesman said this year's coal prices fetched between 730 yuan (HK$833.32) and 800 yuan a tonne and was now at 750 yuan. Current market conditions meant there was little room for price rises even without the directive.
Spot market sales accounted for 38.4 per cent of Shenhua's domestic sales in the first quarter. The ratio was 27 per cent for China Coal Energy and 33 per cent for Yanzhou Coal Mining last year.