Coal mining giant WHITEHAVEN COAL LIMITED (ASX: WHC) has continued its rapid descent today, falling a massive 8.2% and making it the worst performing stock in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) group.
For those investors who need a quick catch-up, Whitehaven Coal, together with almost every other coal company, has been under enormous pressure in recent years as a result of the resource's plummeting price. Indeed, the stock has plunged 84% since April 2011, heavily underperforming the broader market's 13% rise, while it is down 11.4% in the last two days alone.
Falling coal prices as an aside, it appears there are two reasons why Whitehaven Coal has fallen so heavily over the last two sessions.
Firstly, Deutsche Bank recently downgraded its recommendation on the stock from 'buy' to 'hold' which may have sparked some of the sell-off. The second and more major reason however, appears to be reports that China has been turning away Australian coal due to quality concerns. Of course, Australia is capable of improving the quality of its coal, but it could cost an additional US$4 a tonne to bring it up to scratch, according to the Australian Financial Review.
With coal prices hovering around their lowest levels in a decade, the miners are hardly in a position to increase their costs which would ultimately compromise their profitability even further.
Indeed, some investors might consider investing in Whitehaven based on the belief that "surely it can't fall any further", but it won't be long before those investors discover otherwise. The same goes for other coal miners such as New Hope Corporation Limited (ASX: NHC) and Guildford Coal Ltd (ASX: GUF), which have also crashed in price in recent years.
