Shares of Chinese oil companies are leading Chinese ADRs today on news that Beijing will increase price of refined oil and electricity. Shares of China's largest oil company by market value, Petrochina (PTR), jumped $9.78 or 7.27 percent by 11:00 followed closely by Sinopec (SNP) and China's largest independent electricity provider, Huaneng Power (HNP).
|
TOP MOVERS |
6/19/2008 11:00 |
|
|
Symbol |
Price |
Change |
Change% |
|
|
|
|
|
|
PTR |
144.31 |
9.78 |
7.27% |
|
SNP |
114.10 |
9.75 |
9.34% |
|
SHI |
43.01 |
2.18 |
5.34% |
|
HNP |
36.56 |
1.56 |
4.46% |
|
STP |
42.65 |
1.16 |
2.80% |
|
|
|
|
|
|
LDK |
39.36 |
0.78 |
2.02% |
|
JASO |
21.31 |
0.30 |
1.43% |
|
TSL |
39.25 |
0.27 |
0.69% |
|
JRJC |
18.96 |
0.19 |
1.01% |
|
HTX |
21.98 |
0.17 |
0.78% |
|
|
|
|
|
|
NTES |
22.82 |
-0.53 |
-2.27% |
|
SOHU |
82.33 |
-0.62 |
-0.75% |
|
HBC |
79.60 |
-0.72 |
-0.90% |
|
SNDA |
28.65 |
-0.73 |
-2.48% |
|
CEA |
33.71 |
-0.91 |
-2.63% |
|
|
|
|
|
|
CEO |
166.90 |
-1.56 |
-0.93% |
|
CHA |
57.28 |
-1.67 |
-2.83% |
|
CN |
56.39 |
-1.78 |
-3.06% |
|
ACH |
33.95 |
-1.85 |
-5.17% |
|
BIDU |
329.32 |
-3.17 |
-0.95% |
According to the Chinese state media, Xinhua, China's top policy markets yielded to mounting pressure and let the price of gasoline, diesel oil and electricity price to increase. The last time China increased gas prices at the pumps was in November 2007 and even then it was only a modest 10% increase. This time the increase represents a 16 percent increase for gasoline and 18 percent for diesel.
Analysts warned about the possible change in policy in advance and money managers have started to accumulate shares of Chinese refiners, Sinopec and Petrochina in the last few days in Hong Kong. We have noticed of this unusual price movement and issued a warning on the blog two days ago.
The problem for China is many fold. First of all the country is fighting inflation, a number one priority for monetary policy makers. We have just seen how things can go bad - just as it did for Vietnam - when a fixed currency system is not matched with a monetary effort soaking up excess liquidity. The result is excessive inflation of 20-25% and an overheated economy falling back into shambles. Anyhow, China is managing excess liquidity very well and has the highest bank reserve ratio of almost 20%; still inflatory pressures are mounting.
Additionally, China is using the Olympics as a showcase to prove the world how much the county has done in the last decade. The last thing they want is public unrest as a result of high prices at the pump. However the price increase was getting inevitable as state run refiners imported 25% more refined oil products in May v.s April.
The problem for Chinese refiners is that while they pay top price for the crude they can charge just so much at the pump, thanks to the state controlled gasoline prices. This yielded extraordinary losses for Asia's largest refiner, Sinopec, and Petrochina. The companies started to come up with all sorts of excuses for refining less of the crude; such as accelerated maintenance and the Sichuan earthquake. either way, Chinese refiners refined 4% less crude in May while imports of refined products jumped.
While this less then 20 percent increase in refined prices is trimming losses for Sinopec and Petrochina, the companies will still need to find ways to make up for the over 60% increase in crude prices. One way is government subsidies, a regular cash injection both Sinopec and Petrochina have started to receive as of April 1st.
Looking at the only U.S. listed Chinese power generator, Huaneng Power (HNP), the price increase in electricity is good news for HNP investors. As the commission said, price of electricity will be raised by 2.5 cents per kwh as of July 1.
If you were a Chinavestor subscriber, you would have received the following email alert urging you to trim your YZC holdings and go long on HNP. Hope you all did.
If you were a Chinavestor subscriber, youwould have received the following email alert urging you to trim your YZC holdings and go long on HNP. Hope you all did. here is the letter of 6/6/2008 to Chinavestor subscribers.
Dear Subscriber,
We have posted a general assessment of the situation on the Chinavestor blog article “Yanzhou Coal (YZC) : ADRs fall on Shandong's concerns” momentarily.
In addition to the commentary, this is how we think investors can shield themselves from upcoming uncertain news. While Yanzhou fell power generators gained. Huaneng Power (HNP) is up 3.62% today, a reaction to the same news.
If you want to play safe China’s energy markets you may want to increase your HNP holdings and trim back on YZC. Another advice is: don’t over-react. Given the minimal impact on future cash flows of the current price reduction enforced by the local government, today’s drop may be an overreaction of the markets. If you have the nerves to sit for a few days, the market may correct itself and get back Yanzhou where it belongs. If it does, this may be the best time to swap some of your YZC holdings to HNP.
Sincerely,
Blaze Fabry
Chinavestor.com
Tel: 203-463-9416
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