China power sector:Nov power demand growth up slightly

Event。

    Nov power consumption growth improved marginally to 3.3% YoY (from+3.1% YoY in Oct) despite further slowdown in IP growth, mainly driven byfurther pick-up in power demand from residential sector. We believe powerdemand growth will improve slightly in Dec thanks to accelerated new loanissuance in Nov to stimulate economic activity. However, electricityconsumption for the full-year should only increase 4.0-4.5% or 0.55-0.62x ofGDP growth vs the ratio of 0.97x in 2013.

    Impact。

    Nov electricity consumption growth improved marginally to 3.3% YoYfrom +3.1% YoY in Oct, which is diverged from further easing of IP growth to+7.2% YoY from +7.7% YoY in Oct, mainly driven by further pick-up inelectricity consumption growth for residential sector (+5.2% YoY vs +1.0%YoY in Oct) while electricity consumption growth for manufacturing industrydropped further to +2.7% YoY from +2.8% YoY in Oct. For 11M14, totalelectricity consumption increased 3.7%, with the above-average growth forservice (+6.1%) and manufacturing industries (+3.8%).

    Decline in average plant utilization increased to 7.0% YoY in Nov from6.8% YoY in Oct, as a result of a surge in newly added power generatingcapacity in the month (+47% YoY to 9.4GW vs +5.2GW in Oct). Withimprovement in hydropower utilisation slowed to +33.5% YoY in Nov (vs+60.3% YoY in Oct), decline in coal-fired power utilization fell to 6.3% YoY inNov from 13.0% YoY in Oct. For 11M14, only hydropower utilization recordedpositive growth of +9.7% vs -5.8% for coal-fired power and -10.8% for windpower.

    Power plant investment rebounded 25% MoM to RMB43bn after the 12%MoM decline in Oct. However, total power plant investment still dropped 6.1%YoY to RMB289bn in 11M14, mainly dragged by a substantial decline ininvestments in hydropower (-29% YoY to RMB79bn), nuclear power (-11%YoY to RMB47bn and coal-fired power (-1% YoY to RMB78bn). In contrast,investment in power grid rose 2.6% YoY to RMB346bn in 11M14.

    Spot thermal coal price (QHD5,500) rose 4% MoM to RMB530/t, largelydriven by the price hike initiated by major coal miners prior to the thermal coalcontract negotiation with China IPP as in last year. With our expectation of theweak downstream demand (IP moderated further to 7.2% in Nov) andsluggish coal-fired generation (-4.2% YoY in Nov) to continue, we believe therisk of substantial pickup in thermal coal price in the near term is unlikely.

    Outlook。

    We believe that power demand growth will improve up slightly in Dec thanksto accelerated new loan issuance in Nov to stimulate economic activities.

    However, electricity consumption for the full-year should only increase 4.0-4.5% or around 0.55-0.62x of GDP growth vs the ratio of 0.97x in 2013. Onthe positive side, this should suppress the risk of a sharp rebound in coalprice. Given coal-fired IPPs’ strong cash inflows, we see opportunity of assetinjections from parents or the development of more greenfield projects. Weprefer CR Power, China Power International and Huadian Fuxin.