CEO’s sizable selldown amid talk of falling prices spooks Whitehaven shareholders

Investors can be forgiven for seeing unexpected decisions by company insiders to significantly reduce their holdings as a strong cue to sell.

Unsurprisingly, when Whitehaven (ASX: WHC) CEO Paul Flynn off-loaded 900,000 shares in the company (around $8m worth) a sizable cohort also decided to follow suite.

Whether Flynn – who incidentally remains one of Whitehaven's largest individual shareholders - was oblivious to the fallout or simply didn’t care is unclear, but the net effect was a sizable -7.90% fall in the share price at noon today.

Flynn’s timing is lousy

Flynn’s selldown timing appears somewhat insensitive to downwards pressures currently confronting the stock.

He cited personal reasons for today’s chunky selldown, including personal tax obligations arising from the issue of shares under the company’s equity incentive plan for the sale.

Trading data suggests the coal giant's longer-term bullish trend is correcting.

The downward sloping moving average means that investors have been liquidating shares, which cools more recent bullish signals.

Is the share price looking toppy?

Today’s share price fall may serve to further ignite questions over whether the coal-play’s winning innings has finally hit a sticky wicket.

While Credit Suisse ($12), Ord Minnett ($11.10) and Macquarie ($13.20) all see Whitehaven trading above the elusive $11 barrier over the next 12 months, the share price has been unravelling since topping out at $11.04 early October.

Other coalminers also trading lower this afternoon include:

• New Hope Corp (ASX: NHC) down -6.91%

• Yancoal Australia (ASX: YAL) down -2.95%

• Stanmore Resources (ASX: SMR) down -5.36%

• Coronado Global Resources (ASX: CRN) down -3.75%

Coal price weakness

Selldown antics by Whitehaven’s CEO aside, what is also clearly playing on the minds of coal investors is a progressive fall in the benchmark Newcastle Monthly coal price from up around US$400 per tonne early October to US$356 per tonne overnight.

Fuelling investor fear of further declines in the coal price is China's coal production outlook which is expected to rise for a sixth consecutive year to a record high.

According to China Energy News, China’s coal production is expected to reach a new record, with faster capacity expansions at major mines pegged to see Output reach 4.4bn tons in 2022.

In the wake of covid flare-ups that constrained output, government attempts to shore up winter supplies could see output lifted back to a daily record in the final two months of the year.

This eventuality would boosting annual production by 8% on the previous year.

Lid on prices

It’s understood a request by the National Development and Reform Commission for coal miners to lock in more long-term contracts with power generators, will ensure prices remain between 570-770 yuan (US$80 to US$108) per tonne at the Qinhuangdao trading hub - far below international prices.

But while price controls and increasing production have sent spot prices tumbling, investors should remember that any recovery in [coal] demand could be a protracted affair, especially given the country’s lingering property contraction and weaker-than-expected exports.