With the Whitehaven Coal Ltd (ASX: WHC) share price down over 4% in morning trade, the leading coal miner has seen its shares plunge almost 12% since this time last week.
Although there is no news out of the company, I believe the decline is likely to be attributable to a piece of news out of China this week.
According to Reuters, China's National Development and Reform Commission will not force coal mines to cut output on a large scale if prices remain in a reasonable range.
Last year the Chinese government put a restriction on the number of days its coal miners could operate. Instead of 330 days a year, production output was limited to just 276 days in an effort to tackle the coal surplus.
As many readers will be aware, this led to coal prices and the shares of Whitehaven, Yancoal Australia Ltd (ASX: YAL), and New Hope Corporation Limited (ASX: NHC) rocketing significantly higher.
According to the report, the market was expecting further production cuts at the end of the Chinese winter to drive prices higher again. But with no cuts to output forthcoming, coal prices look likely to drift a touch lower over the coming months instead.
With Whitehaven's shares being priced for bumper profit growth this year, I fear they are now at risk of a reasonable decline.
For this reason I would suggest investors avoid the leading coal miner and focus on other areas of the market such as the information technology and healthcare sectors.
I think these sectors are home to a number of high quality companies trading at much fairer prices than Whitehaven and its coal mining peers.
