China Power Firm Margins Worst Since 2006 as Coal Rises: Chart of the Day

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.

The CHART OF THE DAY shows the cost of coal in yuan per metric ton 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 percent, exceeding the proportion in 2008, when record coal prices contributed to blackouts in China, according to data from Sanford C. Bernstein & Co. The lower panel shows year-on-year gains in China’s consumer price index.

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

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

China’s 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, 21st Century Business Herald reported Nov. 15. China is the world’s biggest coal user.

The nation’s 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 percent of the country’s capacity and more than 20 percent of the generating power in India, the world’s second-most-populous nation. China suffered blackouts in 2008 as utilities curbed generation amid benchmark coal prices of as much as $168 a metric ton. The price was at $156.20 on Nov. 11 this year.

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

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.