Weekly Qinhuangdao Thermal Coal Update: Inventory -8%
WoW while Spot Price Flat WoW
Coal inventory at Qinhuangdao -8% wow to 5.88m tons on 24 July — The lower
inventory was due to 1) higher demand amid hot weather and signs of economic
recovery (average daily power generation on 11-20th July was +7.9% yoy), 2)
higher coal transportation volume out of the port via railway lines and 3) less
imported coal after recent price hike (+14% at Newcastle Port in last 1 month).
Shanxi mine-mouth price -5% wow at Rmb410/ton on 24 July (coal with
6,000cal/g) — In Shanxi, 633 small coal mines, or one-fourth of the mines in the
province, resumed operation in 1H09 and raised Shanxi’s monthly raw coal output
by 18% mom to 58m in June. Since 2Q09, Shanxi has eased its control on coal
production to boost GDP growth, as the provincial GDP was -8.1% yoy in 1Q09.
Spot price at Qinhuangdao flat wow at Rmb575/ton on 24 July (Datong coal with
5,800cal/g) — Demand rose due to hot weather but supply increased in tandem
with the reopening of a small coal mine in Shanxi. China Coal Transportation &
Distribution Association expects the spot price to be resilient in the run-up to 1
Oct 2009, as supply might be curbed by more stringent safety measures at coal
mines to avoid fatal accidents ahead of the 60-year anniversary of the PRC.
Stock picks — We like CRP for the potential benefit from new EPS accretive coal
mine projects possibly to be announced in 4Q09E and to be funded by the recent
HK$6bn rights issue. We also like Huadian for a sharp earnings rebound in FY09E
from unit coal cost cut (-15% yoy) and low (5-8%) tax rate in the year.