OREANDA-NEWS. October 05, 2011. China Coal Energy Co. plunged the most in almost three years in Hong Kong trading, after its parent was ordered to cease operations in Shanxi province following a fatal mine accident.

The unit of China's second-biggest coal producer slumped 17 percent to HK\\$8.26 before the company sought a trading halt. The decline was the biggest since the stock dropped 20 percent on Oct. 27, 2008 and erased HKD 13 billion (USD 1.7 billion) in market value. The benchmark Hang Seng index fell 2.2 percent.

China National Coal Group Corp. was ordered to cease underground mining operations in Shanxi province in northern China after flooding at a pit killed 10 people, Xinhua News Agency reported Sept. 17, citing provincial Vice Governor Li Xiaopeng. Operations can resume only after official inspections, the state media reported.

"The temporary suspension, which we expect may last 15 days," will result in a production loss of about 3 million metric tons, Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd., said in a note to clients. "Coal output from China Coal's underground mines in Shanxi is around 60 million to 70 million tons, or 50 percent of 2011 coal output."

The company's Shanghai-listed shares slumped 5.9 percent to 9.02 yuan before trading was suspended about an hour after the halt in Hong Kong.

Prices, Output
The price of power-station coal at Qinhuangdao port, a domestic benchmark, rose for the first time in 12 weeks to as much as 840 yuan a ton as of Sept. 18, data from the China Coal Transport and Distribution Association show. That's 17 percent higher than a year earlier. About 70 percent of China's power stations use coal as fuel.

China Coal's output may still rise to 130 million metric tons this year, Lau of UOB-Kay Hian said in a separate telephone interview. That would be a 38 percent increase from its commercial coal output of 94.4 million tons in 2010, based on figures in the company's annual report.

"Power plants will start restocking by early October," she said. "Domestic prices will start to pick up because of this development."

The flooding occurred in Shanyin county on Sept. 16 and one worker is still trapped in the mine, according to Xinhua.

The company will issue a statement on the situation to the exchange around noon Hong Kong time, said Zhou Dongzhou, China Coal's Beijing-based board secretary. He declined to comment further.

Shanxi Coal
The State Council, China's Cabinet, called for safety checks on railways, coal mines and construction sites in July after a high-speed train crash killed 40 people. The order to halt operations in Shanxi on Sept. 17 comes as power plants prepare to start replenishing coal stockpiles before winter demand for electricity.

Shanxi produced 740 million tons of coal last year, trailing the 782 million tons mined by Inner Mongolia, China's top producing province, according to Xinhua in January. Shanxi is also a coal-production center for Shenhua Group, parent of China Shenhua Energy Co., and Datong Coal Mine Group Co., the country's largest and third-biggest producers, respectively.