China Utilities:Power-IPPs,Coal price,September NDRC index rose along Qinhuangdao price

NDRC: National coal prices rose by 12.0% mom in September

    The National Development and Reform Commission (NDRC) just reportedSeptember national coal (5,000kcal) price indices (coal procurement pricesfor power plants nationwide). The 12.0% sequential increase in the indexwas the largest since the index was first reported in January 2014. All buttwo regions reported price increases, most notably coal-producing SouthHebei (+23% mom). September Qinhuangdao (QHD) benchmark (5,500kcal)prices rose by 16.1% mom. The NDRC index remains less volatile than theQinhuangdao benchmark.

    Notable observation on the NDRC coal price indices in SeptemberCoastal vs. inland: The 12coastal regions had a weighted-average pricehike of 13% mom (vs. a 16% increase in the QHD price). The remaining 20inland regions showed a weighted-average price increase of 11% mom.

    Tight supply and moderate demand might limit price rallyAccording to an article in China Coal News dated October 10, an NDRCofficial has reiterated in an interview that high coal prices have slowed downsupply side reform and added pressure to downstream end-users.

    We expect Qinhuangdao coal prices to retreat materially from current levelsdue to: 1) seasonal moderation in power demand into 4Q; 2) recent increasein coal imports; and 3) loosening government policy on domestic productioncapacity curtailment. The NDRC announced on September 30that safe andadvanced coal mines would be allowed to operate during 4Q16on the basisof 330work days per annum (vs. the policy capping 276work days effectiveMay 1). Our China metals and mining research team expects this to add900ktpd (vs. 500ktpd previously), including 20% raw coking coal. We thinkregulator’s focus is to ensure sufficient coal for winter heating/power supply.