Chinese Power Producers Jump After Report of Government Coal Price Freeze

Chinese power producers including Huaneng Power International Inc. rallied in Hong Kong after the state-run Xinhua News Agency said the government ordered a freeze in 2011 contract prices for coal used in power stations.

Huaneng, China’s largest electricity producer, rose as much as 5.1 percent to HK$4.35 and was trading at HK$4.32 at 10:36 a.m. local time. Datang International Power Generation Co., the second biggest producer, gained 4.3 percent to HK$2.92. The benchmark Hang Seng Index rose 1.3 percent.

Power-station coal prices under term contracts must be unchanged from 2010 levels, Xinhua reported yesterday, citing Cao Changqing, head of pricing at the National Development and Reform Commission. “Any form of price increase is not allowed,” Cao was quoted as saying.

“We believe this is positive for the power producers as the industry has been suffering from rising coal prices” without an increase in electricity prices in 2010, Dave Dai, a Hong Kong-based analyst at Daiwa Securities Markets Co., said by e-mail. “The cap on contracts may to some extent mitigate the companies from further earnings decline.”

China Huaneng Group Corp., the parent of Huaneng Power, and other Chinese power producers are running at losses of at least 50 percent this year because of rising coal prices, China Daily reported, citing Xue Jing, director of the statistics department of the China Electricity Council.

China Shenhua Energy Co., the nation’s biggest coal producer, fell 1.4 percent to HK$32.85.

To contact the reporter on this story: Baizhen Chua in Beijing at bchua14@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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