China's Coal Stocks Decline on Fuel Price Drop, Weaker Demand

By Winnie Zhu

Oct. 6 (Bloomberg) -- Datong Coal Industry Co. and China Coal Energy Co., China's major producers of the fuel, led shares of coal suppliers lower in Shanghai trading after the fuel price dropped to a six-month low on weaker domestic demand.

Datong Coal, the nation's second-largest coal miner, slumped 10 percent, the daily limit, to 15.29 yuan at 10:56 a.m. in Shanghai. China Coal, the country's third-largest, also dropped by 10 percent to 10.55 yuan.

Power station coal prices at Australia's Newcastle port, a benchmark for Asia, declined for a seventh week, falling 6.1 percent to trade below this year's contract price as crude oil slumped. China's demand for the raw material used in power generation is dropping amid a slowing economy, said Wang Shuai, a coal analyst with Orient Securities Ltd.

``The global coal price drop and weaker domestic demand are reasons that caused Chinese coal stocks to slump,'' Wang said by telephone in Shanghai today.

China Shenhua Energy Co., the nation's biggest coal producer, dropped as much as 10 percent to 24.65 yuan and traded at 24.89 yuan at 11:13 a.m. in Shanghai. Smaller rival Yanzhou Coal Mining Co. declined 8.2 percent, the most since Aug. 18, to 11.83 yuan.

The weekly index for power-station coal prices at the New South Wales port dropped $7.81 to $121.17 a metric ton in the week ended Oct. 3, according to the globalCOAL NEWC Index. The spot price is below the contract price of $125 a ton for the year that started April 1, for first time since the week ended April 4.

The Chinese economy, the world's fourth-largest, expanded 10.1 percent in the second quarter, the slowest pace since 2005, as global economic growth stalled, cutting demand for Chinese products. UBS AG reduced its estimate for China's growth in 2009 to 8 percent from 8.8 percent.

China Coal fell 7 percent to HK$7.44 in Hong Kong and China Shenhua dropped 3.6 percent to HK$17.64.

To contact the reporters on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net.