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PetroChina Rallies as Chalco’s Premium Widens: Overnight

Chinese equities rallied in New York as PetroChina Co. jumped after the nation raised natural gas prices while Aluminum Corp. of China Ltd. advanced on prospects domestic demand will increase.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. gained 0.9 percent to a one-week high of 85.1 yesterday. PetroChina, the nation’s biggest oil and gas producer, rose to a one-month high, while Aluminum Corp., known as Chalco, traded at the biggest premium over the Hong Kong stock in two weeks. Baidu Inc. climbed, paring a decline this month, as its benchmark dollar bonds soared.

China will raise non-residential gas prices by 15 percent starting today. New York-based Alcoa Inc., the largest U.S. aluminum producer, reported better-than-estimated earnings for the second quarter and forecast demand in China will rise 11 percent this year, boosting the outlook for Chalco.

“The natural gas increase is significant as China has a short supply because domestic prices are lower than import costs,” Michael Ding, the lead manager of the China Region Fund at U.S. Global Investors Inc., said by e-mail from San Antonio, Texas. “It dramatically improves PetroChina’s earnings and cash flow, eliminating losses in selling and importing natural gas.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., added 0.5 percent to a one-week high of $32.36, climbing for a third day. The Standard & Poor’s 500 Index rose 0.7 percent in its fourth day of gains amid optimism companies will report better-than-forecast earnings.

Rating Upgrades

PetroChina’s American depositary receipts advanced 1.5 percent to $115.67, the highest price since June 4. ADRs of the Beijing-based company have risen 12 percent after China’s announcement of the price increase to natural gas on June 28.

At least four analysts boosted their ratings on PetroChina’s Hong Kong-traded stock after the government announced the increase to natural gas prices last month. Ten out of 12 analysts who have updated their ratings this month recommended buying the stock, while one maintained a rating at the equivalent of hold, data compiled by Bloomberg showed.

Industrial usage accounts for more than 70 percent of China’s natural gas demand, according to Ding at U.S. Global Investors Inc. The price increase “will increase supplies in China in the long term, benefiting PetroChina and oilfield services companies.”

Chalco advanced 2.8 percent to $7.76, the biggest rally in two weeks. Its ADRs traded 1.6 percent above the Hong Kong shares, the highest premium since June 25. Each ADR represents 25 underlying shares in the Beijing-based company.

Global Demand

Alcoa estimated global demand for aluminum will exceed supply by 315,000 tons this year in a presentation for its July 8 conference call. Aluminum stockpiles dropped for an 11th week to the lowest level since September, according to data tallied by the Shanghai Futures Exchange.

China’s customs is scheduled to release June trade data today. Exports probably rose 3.7 percent, according to the median projection of 39 analysts compiled by Bloomberg. That would compare with a 1 percent increase in May and last year’s average monthly growth of 8.3 percent. The U.S. and China start two days of strategic and economic talks today in Washington.

Baidu, owner of China’s most-used online search engine, climbed 2.4 percent to $92.69, the highest close in a week.

The price of the company’s 3.5 percent dollar bonds due in November 2022 rose the most on record, driving the yield down 18 basis points, or 0.18 percentage point, to 4.88 percent.

Hollysys Automation Technologies Ltd., a Beijing-based maker of automation and control systems, advanced 2.6 percent to $12.10, the biggest gain since June 25.

The company won a $5.47 million contract to provide the signaling system for a high-speed rail line in northern China, it said in a statement July 8.

The Shanghai Composite Index advanced 0.4 percent to 1,965.45, rebounding after the biggest slump in two weeks. The Hang Seng China Enterprises Index in Hong Kong slipped 0.1 percent to 9,051.23 in a second day of retreat.

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