Shares in mainland power and coal producers gained after Beijing's announcement of a new power and coal price linkage mechanism that frees coal prices from state intervention and lets power prices track coal price movements more closely. But analysts warned investors that the move did not guarantee profit stability since Beijing retained the right to set power prices and intervene in the setting of coal prices "in times of unusual price volatility". The State Council said on Tuesday that from next year it would stop handing down price guidance on power-station coal prices after having done so annually since 2008. It would instead let buyers and sellers set their own prices. Whenever coal prices moved more than 5 per cent over 12 months, power prices would be "adjusted accordingly", it said. Beijing will also adjust power prices so that power producers are allowed to pass on 90 per cent of the coal price rises or falls to state-owned power distributors, up from 70 per cent, under a mechanism unveiled in 2005 but rarely implemented properly. Last year and the year before, many power producers recorded losses as Beijing held power prices largely steady even though coal prices surged, to help to contain consumer price inflation and prevent social discontent. Widespread losses were also seen in 2008 for similar reasons. With a power price rise in December last year and cash-market coal prices having fallen 25 per cent in the past 13 months and stabilised since August, power generators' profits improved this year while those of coal miners sank. Daiwa Securities head of Asia utilities research Dave Dai said in a research note that power producers' bottom lines were not protected when coal prices rose less than 5 per cent a year. "Also, the government may still make temporary intervention in case of abnormal coal price fluctuations, especially with inflation becoming a concern," he said. Daiwa tips consumer price inflation to rise to more than 3 per cent in next year's second half. Last month, inflation rose to 2.1 per cent from a 33-month low of 1.7 per cent in October. Hong Kong-listed large-cap mainland power producer stocks gained between 0.7 per cent and 3.6 per cent yesterday, while coal miners' shares were up 0.3 per cent to 0.9 per cent.