(Sept 29): The global spike in energy prices and China’s power shortage is creating more losers than winners in Asian equities.
At least 20 provinces and regions making up more than two-thirds of China’s gross domestic product have announced some form of power cuts. The reasons are two-fold: record high coal prices coupled with a fuel shortage has curbed power generation, while some areas have proactively halted electricity flows to meet emissions and energy intensity goals.
Factories churning out everything from toys to vital components for Apple Inc and Tesla Inc have been caught in the fallout. The shortage comes as governments around the world compete for energy supply with low stockpiles and demand surging as economies recover from the pandemic.
The region’s coal and natural gas producers will benefit in the short term from higher prices while their green-energy rivals should gain in the longer run. Energy-intensive sectors that make metals and chemicals may have the most to lose.
Here are some of the stocks and sectors to watch:
Companies that produce and export gas for the region will be clear beneficiaries of surging prices, while those importing, consuming and distributing stand to lose.
Likely winners include Australia’s Woodside Petroleum, Malaysia’s Petronas Gas Bhd, Japan’s Inpex Corp, India’s Oil and Natural Gas Corp and Reliance Industries Ltd. On the other hand, gas distributors such as China Gas Holdings Ltd, Hong Kong and China Gas Co and Kunlun Energy Co may face pressure.
Costs are poised to climb for Indian gas importers like Petronet LNG Ltd and city gas distributors, which use natural gas as feedstock, such as Indraprastha Gas Ltd.
“The risk is that we are going to see a margin squeeze as we come into the winter” for gas distributors, Neil Beveridge, senior energy analyst at Sanford C. Bernstein said in an interview with Bloomberg Television. Gas distributors may not be able to pass through the rising prices as they are regulated by China, he added.
Coal and power
Coal miners may mint more amid high prices for their commodity. Stocks to watch include Indonesia’s Adaro Energy Tbk, Australia’s Whitehaven Coal Ltd and Coal India Ltd. Chinese names include China Shenhua Energy Co, China Coal Energy Co and Shanxi Coking Coal Energy Group Co.
Stocks of coal-based power generators such as China’s Huadian Power International Corp, Huaneng Power International Inc and Datang International Power Generation Co suffered steep losses Monday that were only partially recovered Tuesday.
Independent coal-fired power producers in China are likely to report net losses in the third quarter on higher costs, Citigroup Inc analysts Pierre Lau and Lesley Li wrote in a Sept 26 note. They added that companies will be unable to pass on the complete impact of surging coal prices to consumers.
Stocks of power producers and users declined on Wednesday, even as people familiar with the matter said the Chinese government was considering raising power prices for industrial consumers. The CSI 300 Utilities Index dropped as much as 2.8%. the most since July 16.
Surging electricity prices threaten to hurt shares of intensive power users, with stocks to watch including Aluminum Corporation of China Ltd, Baoshan Iron & Steel Co, Angang Steel Co, China National Chemical Engineering Co and Zhejiang Longsheng Group Co.
As power cuts in China curb industrial output, this flows on into lower shipping demand, affecting stocks like Cosco Shipping Holdings Co, according to analysts.
“The shock is also a wake up call to some long on cyclicals like metals and coal that the best leg of gains are over,” said Shi Junbo, fund manager at Hangzhou Xiyan Asset Management Co.
Global supply chain
Some suppliers for iPhones and carmakers have halted production at certain facilities in China to meet Beijing’s tighter energy-consumption policy.
Apple supplier ASE Technology Holding Co said a plant in Kunshan City will see no production from Sept 27 to Sept 30 due to power restrictions. Other stocks to watch for similar risks include Tesla suppliers like Eve Energy Co and Ningbo Joyson Electronic Corp. Among Chinese carmakers, traders are watching BYD Co, Geely Automobile Holdings Ltd, Li Auto Inc, SAIC Motor Corp and XPeng Inc.
“If power rationing lasts longer, upstream material price will likely increase, bringing cost pressure to part makers,” Bank of America Corp analysts including Ming Hsun Lee wrote in a Sept 27 note.
Green energy stocks
Companies generating power via renewable sources such as wind and water have bucked the weakness seen by their coal-fueled peers. China Longyuan Power Group Corp shares reached a record on Tuesday, after jumping 21% in five sessions. Other stocks in focus include Huaneng Lancang River Hydropower Inc, Fujian Mindong Electric Power Ltd and Cecep Wind-Power Corp.
The government-backed Economic Daily said in a front page commentary on Tuesday that the ultimate way to solve tightness in power supply is through transitioning to lower energy consumption.
“In the long term, the events will provide greater support for wind and solar, and omissions targets will expedite clean energy to join the grid,” Hangzhou Xiyan Asset’s Shi said.