Why the Whitehaven Coal (ASX:WHC) share price is plunging 6% on Wednesday

China is looking to clamp down on surging coal prices.

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The Whitehaven Coal Ltd (ASX: WHC) share price tumbled as much as 10.3% to $2.97 earlier this morning after China’s top economic planner is looking at possibly intervening in its coal market.

At the time of writing, Whitehaven Coal share price is down 5.74% to $3.12.

China working towards coal intervention

China’s state planner, the National Development and Reform Commission (NDRC) held a meeting with coal miners, industry bodies and electricity companies on Tuesday to study measures to rein in surging coal prices, according to Reuters.

“The current price increase has completely deviated form the fundamentals of supply and demand,” the NDRC said.

The NDRC vowed to step up regulation in the sector, and severely punish those involved in thermal coal speculation.

China’s coal shortage has driven a lengthy energy crisis, forcing many cities and industries to ration energy, weighing on economic growth and commodity prices.

Chinese coal futures tumbled sharply on Tuesday, hitting a limit-down of 8% to 1,755 yuan (US$275) a tonne after briefly hitting an all-time high of 1,982 yuan (US$310) a tonne.

The Whitehaven Coal share price, alongside other ASX-listed coal producers such as Yancoal Australia Ltd (ASX: YAL) and New Hope Corporation Limited (ASX: NHC) are all currently down between 7% and 4% at the time of writing.

Brokers lift Whitehaven Coal share price target

Despite the negative news coming out of China, Morgans released a note with a 12-month price target of $3.92. The broker believes there is a “clear upside in WHC linked to sustained coal prices above expectations”.

Morgans forecasts Whitehaven revenues to almost double in FY22 from $1,557 million to $3,054 million. Its strong earnings are expected to significantly reduce debt by $920 million to a $100 million net cash position.

The note said that a “perfect storm of drivers looks likely to persist” and support current record prices. These factors include a resurgence of post-pandemic demand, Chinese domestic shortages, seaborne supply constraints and tight LNG markets/pricing.

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