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TheStreet Open House

Big Coal Is Downsizing in China, and Stock Investors Like It

BEIJING (TheStreet) -- Struggling coal companies in China may be preparing for large-scale layoffs and other cost-saving moves now that banks have reportedly stopped extending credit to a state-owned mining giant.

News that lenders may force major downsizing at domestic mines -- including the powerful Longmay Mining Group, which employs about 250,000 people in northeastern China -- pushed coal company stock prices higher Monday on mainland and Hong Kong stock markets.

Gaining 10% each on the Shanghai Stock Exchange were shares in affiliated but separately listed, state-owned miners Shanxi Coal International and Shanxi Coal, which respectively closed at 4.31 yuan and 4.48 yuan. Meanwhile, Yanzhou Coal (YZC) rose 10% in Shanghai to close at 7.22 yuan, while its Hong Kong-listed shares climbed 4.5% to close at HK$6.03.

Hong Kong shares in the Canadian and Toronto-listed miner South Gobi, which extracts coal in Mongolia and sells it to China, rose 2.5% to end at HK$4.76.

Shares in China's largest coal concern, Shenhua Group (CUAEF), gained 4.6% to close at 14.78 yuan on the Shanghai exchange. The company's Hong Kong-listed shares ended the day 2.8% higher at HK$21.65.

Also on the Shanghai market, Datong Mining, the country's third-largest coal concern, rose 9.9% to 6.20 yuan, while second-largest China Coal Energy (CCOZY) jumped 7.8% to close at 4.51 yuan.

In December Shenhua signed an agreement with America's Peabody Energy (BTU) to streamline Chinese imports of foreign-mined coal, which is one reason why domestic miners are under pressure to downsize.

China mines and consumes more coal than any other country. But rising imports for power plants, mainly from Southeast Asia, as well as slowing demand for coking coal for Chinese steel plants and other types of coal for manufacturing have pushed prices down.

Demand for domestic coal has also been hit by a government push to clean the nation's air by burning less-polluting coal in power plants and factories.

In the face of rising imports and sliding demand, coal has been piling up at the nation's seaports for more than two years.

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