Home » Business » Biz Commentary
Coal prices to stay bumpy until next February
By Cai Hongyu and Liao Mingbing |
December 28, 2012, Friday
|
Print Edition
Print Edition
SHARE prices of Hong Kong-listed coal companies rallied further over the last two weeks, with Shenhua adding more than 5 percent, China Coal nearly 4.5 percent, and Hidili more than 6 percent. That compared with 2.5 percent increase of the Hang Seng China Enterprises Index.
However, as coal prices are unlikely to rise until the completion of destocking around February next year, while the stocks have gained 32 percent from September's lows and valuations are no longer cheap, we think the sector will most likely to stay bumpy near term.
In the medium term, the continuous economic recovery, policy expectation, as well as coal price rebound will provide some more upside. We continue to rank Shenhua higher, given its safe valuation, the upcoming convergence of coal prices and coal to olefin injection.
China's policy is relatively positive, overseas conditions are stable, watch the progress of the fiscal cliff issue.
The Central Economic Work Conference, held in mid-December, emphasized the quality and efficiency of growth, and set accommodative fiscal policy and a stable monetary policy direction. The conference also mentioned the "new type" of urbanization, and the fact the government will stick to its property control policies.
Overseas, US expanded quantitative easing from US$40 billion to US$85 billion. Despite disputes over its details, the US's two political parties are likely to reach agreement over the fiscal cliff issue eventually.
Meanwhile, Standard & Poor's raised Greece's government bond rating, reflecting European Union member countries' determination to retain Greece within the Eurozone; and the Japanese central bank expanded its asset purchase plan, which further increased global liquidity.
Thermal coal destocking going smoothly, prices should stay range bound near term before rebounding around February 2013.
Key power plants
In early December, national power generation and coal consumption at key power plants recovered further, suggesting demand is improving; and the inventory at key power plants continued to fall to 22 days from October 10's peak of 31 days.
Power plants are likely to restock after February, and the strengthening of safety regulations before the next March should restrict excess production. As such, coal prices should recover by then. The National Development and Reform Commision's cancellation of spot coal price cap and contract price guidance will take effect on January 1, 2013, which has been widely expected by the market.
Recovery of steel price and output may boost coking coal prices, but the upside will be capped due to production resumption of small mines and import increases. Crude steel output remained high, driven by infrastructure investment. Steel prices rose 3 percent over the past two weeks, and the cancellation of the coke export tariff may modestly increase coking coal consumption.
The recently announced scarce coal resource protection policy will benefit the sector in the long term, but it is hard to see a notable effect on the supply or demand in the near term.
Cai Hongyu and Liao Mingbing are analysts at China International Capital Corporation.
However, as coal prices are unlikely to rise until the completion of destocking around February next year, while the stocks have gained 32 percent from September's lows and valuations are no longer cheap, we think the sector will most likely to stay bumpy near term.
In the medium term, the continuous economic recovery, policy expectation, as well as coal price rebound will provide some more upside. We continue to rank Shenhua higher, given its safe valuation, the upcoming convergence of coal prices and coal to olefin injection.
China's policy is relatively positive, overseas conditions are stable, watch the progress of the fiscal cliff issue.
The Central Economic Work Conference, held in mid-December, emphasized the quality and efficiency of growth, and set accommodative fiscal policy and a stable monetary policy direction. The conference also mentioned the "new type" of urbanization, and the fact the government will stick to its property control policies.
Overseas, US expanded quantitative easing from US$40 billion to US$85 billion. Despite disputes over its details, the US's two political parties are likely to reach agreement over the fiscal cliff issue eventually.
Meanwhile, Standard & Poor's raised Greece's government bond rating, reflecting European Union member countries' determination to retain Greece within the Eurozone; and the Japanese central bank expanded its asset purchase plan, which further increased global liquidity.
Thermal coal destocking going smoothly, prices should stay range bound near term before rebounding around February 2013.
Key power plants
In early December, national power generation and coal consumption at key power plants recovered further, suggesting demand is improving; and the inventory at key power plants continued to fall to 22 days from October 10's peak of 31 days.
Power plants are likely to restock after February, and the strengthening of safety regulations before the next March should restrict excess production. As such, coal prices should recover by then. The National Development and Reform Commision's cancellation of spot coal price cap and contract price guidance will take effect on January 1, 2013, which has been widely expected by the market.
Recovery of steel price and output may boost coking coal prices, but the upside will be capped due to production resumption of small mines and import increases. Crude steel output remained high, driven by infrastructure investment. Steel prices rose 3 percent over the past two weeks, and the cancellation of the coke export tariff may modestly increase coking coal consumption.
The recently announced scarce coal resource protection policy will benefit the sector in the long term, but it is hard to see a notable effect on the supply or demand in the near term.
Cai Hongyu and Liao Mingbing are analysts at China International Capital Corporation.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
