China Gas Distributors Tumble as Price Cuts Raise Revenue Worry

  • Zhejiang province lowers non-residental gas pirce by 0.1 yuan
  • Local price cuts `perhaps unnerved investors': Macquarie

China’s natural gas distributors tumbled in Hong Kong after regional cuts to transportation fees and prices raised concerns that the move may spread to other parts of the country and squeeze margins.

Price regulators in the province of Zhejiang ordered gas companies to cut transportation tariffs. as well as gas prices for commercial customers, according to greatgas.cn, a website owned by ENN Energy Holdings Ltd.’s parent company, citing a document from the provincial price bureau. ENN on Wednesday closed down 11 percent in Hong Kong, the biggest drop since June 2010. China Gas Holdings Ltd. lost 12 percent, the most since 2013.

“This announcement demonstrates the possibility for the local governments to directly set distribution margins, which has perhaps unnerved investors,” analysts at Macquarie Group Ltd. said in a research note Wednesday. “It raises concerns that other provinces may follow suit.”

The Chinese government adjusted gas prices twice last year to stoke demand and shift consumption from coal, which makes up 64 percent of the country’s energy mix. Gas demand expanded 3.3 percent in 2015, while coal consumption dropped 3.7 percent, declining a second year, according to the National Bureau of Statistics.

Falling Margins

ENN doesn’t have “high exposure” in Zhejiang province and expects the impact to its margins to be limited, the company said in an e-mail Wednesday. The policy will stimulate downstream natural gas demand, it said. Gong Yuanchang, a Hangzhou-based spokesman at Zhejiang Price Bureau, didn’t answer two calls to his office seeking comment.

Transportation margins before the cut in Zhejiang province were higher than the national average and the relatively lower margins in other provinces temper the chance that the cuts will spread to other parts of the nation, according to Macquarie and UOB-Kay Hian.

The higher margin “allows more room for the Zhejiang government to cut the price at the expense of gas distributors,” the Macquarie analysts wrote.

The Zhejiang policy may have little impact on China Gas’s earnings as the province only accounts for 1.3 percent of the company’s total sales, according to Shi Yan, a Shanghai-based analyst at UOB-Kay Hian.

“Given that Hong Kong-listed city gas companies normally have nationwide exposure, we think the dollar margin erosion in Zhejiang alone will not have a big impact on the whole industry,” Shi said.

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