China's Coal Inventories Rise, Power Usage Declines, Rebound Expected

 | Nov 04, 2012 06:34AM ET

Thermal coal inventories at China's power plants continue to grow. This is an important leading indicator that analysts look to in order to understand inflection points in power demand and ultimately output growth.

China coal inventories

The question of course is how to reconcile this with somewhat stronger indicators coming out of China these days. For example the official manufacturing PMI from October shows a slight expansion.

China PMI

But with the Markit/HSBC PMI indicating a slight contraction (Xinhua : China's power consumption is expected to rise 4 percent to 6 percent year on year in the fourth quarter as the country's economy is stabilizing, the China Electricity Council (CEC) said on Tuesday.

That will bring electricity consumption in the entire year to 4.94 trillion kilowatt-hours (kwh), up 5 percent from a year earlier, the CEC said.

The country's total installed power generation capacity will hit 1.14 billion kilowatts at the end of this year, the CEC said.

Power demand and supply will be balanced because there are abundant coal stocks in most thermal power plants and hydropower plants, according to the CEC.

If that's the case, we should see thermal coal inventories begin to decline this quarter. Total coal inventory level remains a good indicator of China's industrial output growth, but one needs to take hydroelectric power usage into account in this analysis.

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