Some coal-fired power plants in China have been suffering capital strain, mainly due to surging thermal coal prices, despite a series of measures the government took to quell the rally.
On January 29, the most-active thermal coal futures on Zhengzhou Commodity Exchange for May delivery stood highest at 679.8 yuan/t, hitting a new high since its debut in 2013. The futures price has been going upward from 602 yuan/t at the beginning of the year, up 13% within less a month.
On the same day, coal stocks continued to advance in A-shares – Shanxi Lu'an Environmental Energy Development (SHA: 601699) rose 6.81%, Datong Coal Industry (SHA: 601001) up 6.77% and Yanzhou Coal (SHA: 600188) up 6.03% as of market closure in the afternoon.
On the spot market, thermal coal prices have been on a continuous rise recently. On January 29, offer price for 5,500 Kcal/kg NAR coal approached 760 yuan/t, FOB Qinhuangdao port with VAT, the highest since June 2012.
High coal prices, which jumped 25% from the year-ago level, make it hard for utilities to break even now, with many of them in lack of capital and would have suffered losses last year.
In an urgent letter submitted to China's National Development and Reform Commission on January 22, four of China's five major power generators reported many of their branch coal-fired plants were losing money, and some were struggling without loans from banks any longer.
Central China's Hunan province recently said all-in cost of key thermal power firms averaged over 1,120 yuan/t on standard coal basis, a record high in the history, leaving few profit margins for them.
These are never individual cases. Market insiders thought losing money in 2017 is in all likelihood for most listed thermal power firms.
Changyuan Electrict Power Co., Ltd., a Shenzhen-listed arm of China Energy Investment Corp, said late January 26 it may suffer a loss of 90-150 million yuan last year, compared with 399 million yuan of net profit in 2016.
Jilin Electric Power Co., Ltd. said its fuel cost increased 526 million yuan and it book a loss of 335-355 million yuan in 2017.
Huadian Energy Co., Ltd., a Shanghai B-share listed subsidiary of China Huadian Corp., expected to loss 950-1,050 million yuan last year, as its costs surged by 110 million yuan from a year ago because of coal price rally.
Beside high coal prices, another tricky problem is coal stocks that have fallen below the critical levels at many power plants.
The four power generators said in the letter that coal stocks now are below the critical level of seven days of use at some power plants in northeastern region, Beijing-Tianjin-Tangshan region, Shandong, Anhui, Gansu, Guizhou, Xinjiang, Hubei, Hunan, Zhejiang and part of southern coastal regions.
Especially in northeastern region, Hubei, Shandong, Anhui, Gansu and Guizhou, where some power plants only had only 2-3 days of coal stocks.
Data from sxcoal.com showed combined coal stocks totaled 8.88 million tonnes at China's six major coastal power groups as of January 30, down 10.8% from a week ago and 15.17% from a month ago.
With recent snowfalls blanking most parts in central and eastern China over January 24-28, the six's daily coal consumption soared to 812,000 tonnes on January 30, reducing stocks to below 11 days of use on average.
The four generators warned if the stocks can't resume to normal soon, there will be tough issues like insufficient heating and electricity during the coming Lunar New Year and it will be difficult to cope with extreme weather like blizzards and large-scale freezing temperature.
In the days up to February 5, cold front will grow stronger towards the south while temperature will fall further in the north, according to the National Meteorological Station. "Temperature will pick up slowly thereafter, but it's still far lower than previous years."
To cope with the issues, the four generators gave their solutions. Besides plea of coal price stabilization, they requested the NDRC to strengthen coal production and transport.
They seemed to have received the answers.
Shanxi, as well as Guizhou and others, promised to keep coal mines running during the Lunar New Year holiday. The railway departments prioritized coal delivery ahead of other freight cargoes during the busiest passenger transport season when millions of migrant workers are coming back home for the holiday.
(Writing by Alex Guo Editing by Harry Huo)
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