Shaanxi Coal sees strong rise on market debut

Shaanxi Coal Industry Co, China's third-largest coal producer in terms of output, made an unexpectedly strong debut on the Shanghai Stock Exchange Tuesday, with investors still hungry for new listings.

The company's share price soared by 25 percent to 5.01 yuan ($0.82) within three minutes of the start of trading on the bourse, but later eased to 4.55 yuan at close of trading, a rise of 13.75 percent from its IPO price.

The coal producer raised 4 billion yuan in the largest IPO so far this year.

However, media reports have said it is the least attractive of new listings in the A-share market since the resumption of IPO approvals.

The Chongqing Morning Post reported Tuesday that the company's share price might fall below its IPO price, given sliding profits and weak demand in the coal sector.

"The prospects for the coal mining industry in China are not optimistic," Liu Enqiao, an analyst at Beijing-based Anbound Consulting Co, told the Global Times on Tuesday.

Coal producers have been struggling with falling prices since mid-2012, given weak demand and the impact of cheaper coal imports, Liu said.

The country's efforts to trim overcapacity in downstream industries and promote clean energy will also put pressure on demand for coal, Liu said.

Shaanxi Coal said in its prospectus that its net profit in 2013 was expected to have slipped by 42 to 45 percent from 2012's 6.42 billion yuan. It reported net profit of 9.07 billion yuan in 2011.

The rise in Shaanxi Coal's share price shows investors are still hungry for new listings and are ready to speculate with new shares, Liu noted.

The firm is not the only one to see a rapid gain on its market debut. Eight other newly listed firms saw a rise in their share price of as much as 44 percent by close of trading Tuesday.

A similar pattern was seen last week, with new listings jumping after their debut.

To prevent excessive speculation with new stocks, the regulator could adopt measures such as increasing the number of firms that can debut on the same day, and prolonging suspensions of trading so as to alert investors to risks of falling prices, Li Daxiao, head of research at Yingda Securities, told the Global Times Tuesday.

However, before the regulator takes such actions, it should introduce more money into the capital market to offset the dilution of funds caused by new stocks, he said.