Power counters climb as deals light up sector
Shares of the mainland's top five electricity producers all benefited yesterday after two of them secured better than expected domestic coal supply contracts.
Huadian Power International saw its share price jump 12 per cent, or 26 HK cents, to HK$2.43, the highest since last September, while Huaneng Power International, the listed arm of the country's largest power producer China Huaneng Group, climbed 5 per cent, or 27 HK cents, to HK$5.66.
The two power producers sealed coal contracts with mines in Shandong and Henan at 460 yuan (HK$521.87) a tonne which, although 4 per cent higher than last year, was way below market expectations of an at least 10 per cent rise, analysts and brokers said.
'It's like the first rain in a long drought,' Fulbright Securities general manager Francis Lun Sheung-nim said. 'Power producers have waited for a long, long time for such favourable contract terms.'
In a chain reaction, other power stocks also rose. China Power International Development, headed by former premier Li Peng's daughter, Li Xiaolin, jumped 12.65 per cent, or 30 HK cents, to its year high of HK$2.67.
Datang International Power Generation shares gained 7.15 per cent, or 31 HK cents, to an eight-month peak of HK$4.64.
China Resources Power Holdings shares rose 3.79 per cent, or 68 HK cents, to HK$18.60 after lowering significantly its debt owed to unlisted parent China Resources Holdings through a HK$5.92 billion rights share sale.
Some analysts remained cautious about the possibility of other provinces following the decisions of the Shandong and Henan provincial governments to refrain from raising coal prices sharply to share the cost burden of loss-making independent power producers.
Despite pressure from the National Development and Reform Commission on local governments to keep coal price increases to a minimum, contract negotiations between state-owned suppliers and independent power producers had been deadlocked since the beginning of the year.
'It is good news for independent power producers,' an analyst with a European brokerage said. 'We believe this is a decision by individual provinces. We are watching closely if major coal miners and suppliers such as China Shenhua will offer lower price rises, which needed to be as much as 18 per cent to sustain profitability.'
However, any increases of this magnitude would add salt to the wounds of independent power producers, which plunged into the red last year as on-grid tariffs were raised too little and too late to offset a steep increase in coal prices.
Citibank analyst Pierre Lau said Huadian's purchase represented about 20 per cent of its total consumption of the fuel this year, which provided more certainty to the power producer's potential turnaround in profitability this year from a 2.56 billion yuan net loss last year.
In the first quarter, Huadian returned to a net profit of 191 million yuan after losing money in the previous three quarters. The turnaround was helped by a 16.7 per cent drop in coal costs and an 11 per cent rise in on-grid tariffs.