CHINA COAL & POWER:Coal price continued to recover, demand improved

Bohai Bay Index gained RMB15/tonne in the past two weeks.

    CCI1 index (5500 kcal spot price at northern ports) was up 0.3% w-w toUSD79.2/tonne and CCI2 index (5000 kcal spot price at northern ports)was up 0.5% w-w to USD69.7/tonne. Bohai Bay Index price increasedanother RMB7/tonne to RMB497/tonne, after RMB8/tonne price hike lastweek. The mine-mouth prices at Inner Mongolia Ordos and ShanxiDatong remain unchanged at RMB150/tonne and MB387/tonne. Shenhualifted its October price for 5500 kcal by RMB15/tonne to RMB499/tonne.

    We expect further upside to coal price, with IPPs’ stocking demand andupcoming peak season.

    Inventory days down at IPP; QHD and Huanghua inventory down.

    Coastal IPP inventory declined to 24.3 days, from last week’s 25.8 days,mainly due to the 5.8% w-w increase in coal consumption. QHD inventorywas down 10.2% w-w to 5.4mt, the lowest level since September. Portoutput grew 12.7% w-w. The waiting queue was 78 vessels (vs 67vessels last week), with another 20 vessels scheduled to arrive nextweek. Inventory at Huanghua port was 1.49mt, down 12.8% w-w.

    International coal price at a 10.4% discount to domestic coal.

    On 24 October, CCI 8 (5500 kcal imported coal price at southern ports)was down another 0.5% w-w to USD63.7/tonne. Thus, the internationalcoal price is now at a 10.4% discount to domestic coal price, vs. the 9.2%discount last week.

    September imported coal volume down 17.8% y-y but up 12.2% m-m.

    September imported coal volume down 17.8 y-y, but up 12.2% m-m to21.16mt as the price gap widened in September. Total imports in 9M14 fell6.7%y-y to 222.9mt, contributing 7.2% of domestic demand. We expectcoal imports to be discouraged due to government policy intervention,although the recent price discount widened further.

    September power demand up 2.7% y-y.

    September power demand recorded 2.7% y-y growth (August: down 1.5%y-y), driven by primary industry’s 6.5% growth, secondary industry’s 5.2%growth, tertiary industry’s 4.9% growth and residential’s 10.2% decline.

    The secondary industry accounted for only 70.5% of total power demand,lower than the normal level of 75%. 9M14 power demand grew 3.9% y-y.

    Despite the slight improvement in power demand, we believe powerdemand growth was still weak, mainly due to sluggish industrial demand.

    Power generation was up 4.4% y-y. Thermal power utilisation hour was -13.5% y-y/-12.5% m-m, while hydro power utilisation hour was +13.4% yy.

    Total FAI was down 11.4% y-y in 9M14, with thermal, hydro and nuclearpower FAI down 9.2%, 37.6% and 7.6%.