Power industry in China maintained its profitability stable around 50% during the first ten months of 2023, while the situation for coal industry was the other way around. The divergence has a direct relation with declined coal prices in the year.

 

China's coal mining and washing industry earned a total profit of 652.06 billion yuan (around $91.86 billion) in the first ten months of the year, falling 26.6% year on year (YoY), according to data from the National Bureau of Statistics (NBS).

 

Contrary to this, the power, heating, gas and water production and supply industry earned 586.46 billion yuan during the same period, up 40% YoY, with specific figure for power and heating industry up 50.1% YoY.

 

Electricity industry ranked the top in profit-making among the whole industrial sector, whereas coal industry posted the third-largest YoY decline in profit margins, revealing diverged profitability trends for the two.

 

Since April 2022, the profit margin of the coal industry has been continuously narrowing, and the downward trend has eased since April this year. The restoration of profit margins in the power industry seems to have occurred earlier, in December 2021, and achieved positive growth in September 2022 and started to drop after a record increase in December 2022.

 

Thermal coal prices at northern ports started to decline after hitting the record high in March 2022, and only rebounded temporarily in June this year.

 

The role of coal-based electricity in energy security has been underscored again amid the lack of power derived from other sources.

 

The government has introduced a series of relief and support policies to stimulate the production enthusiasm of power enterprises, which is also conducive to the improvement of business conditions.

 

In fact, the divergence of profit trends between the coal and electricity industries is more evident in the performance of listed companies.

 

According to the quarterly reports of listed coal companies, at least 24 out of about 30 companies on the A-share market experienced a decline in profits during the first three quarters, accounting for about 80%, with China Shenhua down by 18.4%, Shaanxi Coal Industry by 44.56%, Yankuang Energy by 46.8%, Lu'an Environmental Energy by 21.57%, while other companies such as Zhengzhou Coal & Electricity, Antai Group, and Baotailong register YoY decreases of 276.55%, 586.34%, and 120.08%.

 

For power industry, nearly 90% of power companies saw YoY increases, with Zhejiang Energy Power skyrocketing by 1,217.33%, and Shanghai Power rising 500%.

 

Coal market often experiences an upward trend in the fourth quarter, but this year may be an exception. China's coal supply capacity has been strengthening during the first three quarters this year, with coal stocks at each link at relatively high levels, laying a solid foundation for stable coal supply during this winter, said Shi Ying, the vice chairman of the China Coal Transportation and Distribution Association.

 

However, power consumption is highly likely to maintain around the high range in the fourth quarter, and is expected to climb further alongside economic revival and heating demand in winter. This is set to improve power plants' sales and profitability.

 

Thermal coal prices although are forecasted to remain strong in the following days of this year, price fluctuations are unlikely to occur given 100% coverage of term-contract coal.

 

Performance of listed power companies therefore will improve further, and continue to post large YoY growths, especially given the low base a year ago.