China Drought May Raise Coal Demand, Boost Prices, CLSA Says March 26, 2010, 1:15 PM EDT
March 26 (Bloomberg) -- Droughts in southwest China may increase demand for coal used in power plants, and support prices in the low season, CLSA Research Ltd. said.
Coal-fired power stations may need an additional 35 million metric tons of the fuel to compensate for a 15 percent drop in capacity utilization at hydropower plants, Dave Dai, a Hong Kong-based analyst at CLSA, said in a report e-mailed today.
This may support coal prices in low-season, offering upside on coal names and creating uncertainties for the China IPPs, Dai said. The extra fuel needed means a 2 percent increase in coal use or a 1.1 percent gain in total demand this year, he said.
Chinas imports rose 169 percent to 13.1 million tons in February, underpinned by electricity demand, according to customs data. The mainland paid about $92 a ton for coal in that month. Thermal coal prices to China on delivered terms climbed as high as $120 a ton in January from less than $90 a year earlier, Macquarie Group Ltd. said in a report this month.
Dai rated Yanzhou Coal Mining Co., China Shenhua Energy Co., SouthGobi Energy Resources Ltd. and Hidili Industry International Development Ltd. as outperform.
Thermal coal prices are stabilizing, and a weak hydropower season may contribute some upward pressure, he said. Yanzhou is the best play given its spot exposure and opportunity for modest multiple re-rating on signs of execution in Australia.
Hydro power generation accounted for 17 percent or 616 billion kilowatt hours of Chinas total power generation of 3,715 billion last year, while coal-fired utilities accounted for 80 percent, Dai said. Nuclear power made up 2 percent.
China imported 80 million tons of thermal coal and exported 18 million tons last year, Macquarie Group Ltd. said in the report. That compares with exports of 36 million and imports of 31 million in 2008.
Dai has a buy rating on Fushan International Energy Group Ltd., a producer of coking or steelmaking coal.
--Editors: Raj Rajendran, Jane Lee.
To contact the reporter on this story: Dinakar Sethuraman in Singapore at [email protected];
To contact the editor responsible for this story: Clyde Russell at [email protected]
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