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Eric Ng

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



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