Oct 29, 2021 08:49 PM

China’s Top Power Producers See Red as Surging Coal Prices Sink Profits

A Huaneng power plant in Huai’an, East China’s Jiangsu province, in September 2020. Photo: VCG
A Huaneng power plant in Huai’an, East China’s Jiangsu province, in September 2020. Photo: VCG

Three of China’s biggest power-generating companies lost billions of yuan in the third quarter, squeezed by soaring coal prices and a state-run pricing system that prevented them passing on higher costs to consumers.

Datang International Power Generation Co. Ltd. (601991.SH) reported a net loss of 1.6 billion yuan ($250 million) for the three months ending Sept. 30, compared with a profit of 2.67 billion yuan a year earlier, its quarterly earnings report (link in Chinese) released Thursday showed. The company attributed the deterioration to a jump in operating costs caused by higher coal prices. Profit in the first half of the year fell 7.97% to 1.63 billion yuan.

Huadian Power International Corp. Ltd. (600027.SH) swung to a 1.8 billion yuan loss in the third quarter from a 1.37 billion yuan profit a year earlier, while Huaneng Power International Inc. (600011.SH) sank 3.5 billion yuan into the red, reversing a net profit of nearly 3.4 billion yuan for the same period last year. The two companies, who released their earnings reports on Tuesday, also blamed the losses on surging coal prices.

Datang, Huadian, and Huaneng, along with China Energy Investment Corp. Ltd. and State Power Investment Corp. Ltd., are China’s five largest power producers, who together account for around 44% of the country’s power generation capacity, according to S&P Global.

The average price paid by power generators for thermal coal, the main fuel used to produce electricity in China, was 109% higher in the third quarter than the same period last year, and 32% higher than the second quarter, according to Citic Securities Co. Ltd. Separately, coal futures traded on the Zhengzhou Commodity Exchange have soared 200% this year and rose to a record high of 1,982 yuan a tonne on Oct. 19.

The squeeze on coal supplies has been caused by government efforts to rein in industrial overcapacity and by stricter safety and environment requirements, which have led to a drop in production. A strong rebound from the Covid-19 pandemic and low stocks of the fuel have also contributed to the shortage.

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Power generators have until recently been unable to pass on the higher coal costs to customers in the form of higher charges because of caps imposed by the government that only allowed prices charged by generators to rise by as much as 10% over the benchmark price set by the regulator. 

The third-quarter losses dragged down the nine-month earnings figures for all three power generators. Datang’s net profit plunging 99.5% to 13.5 million yuan as its operating costs soared 23% to 68.7 billion yuan. Huaneng’s net profit sank 91.4% to 783 million as its operating costs jumped 37% to 133.8 billion, while Huadian put in a better performance with only a 57.5% drop in earnings to 1.62 billion yuan even as its operating costs jumped 38%.

The earnings picture could still be grim in the fourth quarter as power generators continue to suffer from high coal prices, but the outlook may improve at the end of the year as a result of government action to allow power producers to raise charges for industrial customers. A State Council meeting on Oct. 8 decided that prices could rise by as much as 20% over the benchmark price and that prices to energy-intensive companies would not be subject to any limits. 

The National Development and Reform Commission (NDRC), the country’s planning agency which regulates the power sector, said in an Oct. 12 statement that the changes would be effective from Oct. 15.

The commission is also taking action to rein in coal prices. In a statement on Tuesday, the NDRC said it was “studying the establishment of a coal market price information mechanism to guide the long-term stability of coal prices in a reasonable range.” The commission confirmed to Caixin that it has discussed plans to set the price of the most-popular, 5,500-NAR grade of coal at 440 yuan a ton at the pit-head, with a maximum increase of 20% to 528 yuan a ton. The proposal is now awaiting State Council approval.

Coal futures have already reacted to the plans. The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange fell 7.5% to 973 yuan per tonne on Friday and is now down 47% since the Oct. 19 peak.

Contact reporter Manyun Zou ( and editor Nerys Avery (

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