The share prices of mainland power producers rallied in Hong Kong yesterday after they fended off calls from coal suppliers for price increases during a conference held last week to negotiate contracts for next year.
Datang International Power Generation paced gains, jumping 9.04 per cent to HK$4.10. Huaneng Power International rose for the first time in five trading days, climbing 6.09 per cent to HK$5.40.
Mainland power producers have incurred steep losses this year as the economic downturn reduced demand for electricity. And with coal supplies piling up, generators have baulked at higher contract prices, insisting that lower prices are needed to offset potential losses next year.
'Right now they have on average 20 to 30 days' worth of inventory, so that is their bargaining chip with the coal miners,' said Alan Chan, an analyst at Daiwa Institute of Research. 'There is no imminent need for them to lock up [prices].'
The five state-owned national power producers, including China Datang Corp and China Huaneng Group, refused to concede higher prices to coal producers for next year's contracts at the conference in Fuzhou, Fujian province.
Some smaller power companies agreed to conditional contracts, but they can later be repriced depending on market conditions. Agreement was reached on 300 million tonnes worth of contracts, which is less than half of the total amount projected for the conference, according to a Nomura report released yesterday.
