Chinese power plant margins worst since 2006 as coal prices rise

Saturday, 19 Nov 2011

Bloomberg reported that Chinese power plants face the smallest profit margins in at least five years as government mandated caps on electricity prices prevent utilities from passing along coal price increases.

According to data from Sanford C Bernstein & Co the CHART OF THE DAY shows the cost of coal in yuan per tonne as a percentage of what three benchmark plants in the cities of Taicang Changshu and Chaozhou can charge on average for their power supplies. Fuel expenses are 95.5% exceeding the proportion in 2008 when record coal prices contributed to blackouts in China. The lower panel shows YoY gains in China consumer price index.

Mr Michael Parker a senior analyst in Hong Kong at Bernstein said these plants highlight the difficulties that the entire sector is facing with high coal prices. The positive side for power producers is that inflation seems to be cooling, so there’s a good chance the government may increase tariffs.

China has kept electricity prices unchanged for more than five months as the government focused on fighting inflation which Premier Mr Wen Jiabao said last month was his top economic priority. The CPI in October rose 5.5% from the same period a year earlier compared with 6.1% in September. The MoM drop was the steepest in almost three years.

China State Council is reviewing a plan to increase electricity prices paid to power plants to ensure supplies after generation companies suffered losses because they had to shoulder rising costs. China is the world biggest coal user.

The nation power shortage may peak at 40 gigawatts in the winter and spring as demand growth outpaces supply, the China Electricity Council said last month. That would be about 4%of the country capacity and more than 20% of the generating power in India, the world second-most-populous nation. China suffered blackouts in 2008 as utilities curbed generation amid benchmark coal prices of as much as USD 168 per tonne. The price was at USD 156.20 on November 11 this year.

(Sourced from Bloomberg)