Chinese gencos to see earnings recover in 2022: report

This comes as CreditSights expect the cost of coal to be lower this year.

Chinese power generation companies (gencos) are expected to see their earnings recover and credit profiles improve in 2022, CreditSights reported. 

This comes as CreditSights project the cost of coal to be lower in 2022 than last year after China placed caps on coal prices, rising domestic coal supplies, and higher coal imports. 

Gencos are also likely to benefit from a more market-based electricity tariff pricing mechanism. 

“We also expect the gencos to enjoy favorable funding conditions due to their status as central government-owned entities and their strong policy roles in ensuring a stable power supply and carrying out the utilities-related infrastructure stimulus for FY22,” the report read in part. 

Last 9 May, seven Chinese provinces announced pricing caps on thermal coal, in line with the guidance of the National Development and Reform Commission (NDRC).

This followed an acute coal and power shortage in China back in September and October 2021 that led to disruption in industrial production activities and power supplies. 

The NDRC intervened in mid-October by capping the Qinhuangdao Thermal Coal 5,500 Kcal/Kg (QHD 5500C) spot price at RMB 1,800/ton to curb excessive speculation and hoarding of coal products.

The NDRC further stipulated a price guidance of RMB 570-770/ton on contracted coal prices for QHD 5500C and a spot price ceiling of RMB 1,155/ton, effective from 1 May 2022. 

“Following the guidance pricing band from the NDRC, seven major coal-producing provinces capped their local level contracted thermal coal prices at RMB200-770/ton and FOB spot price at RMB 4500-1,155/ton,” CreditSights noted.

“In our view, the pricing guidance is in-line with the central government’s goal of controlling domestic commodity price inflation and ensuring stable electricity tariffs.”