(Bloomberg) -- More Chinese regions are cutting electricity prices to help out their embattled industries, which is likely to worsen the squeeze on profits at power suppliers.
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The richest coastal provinces have reduced their benchmark thermal power prices by about 10% from last year, according to a briefing by UBS Group AG this week. The bank expects power demand for coal, the country’s mainstay fuel, to fall by 4% in 2025.
China’s factories are contending with a weak economy at home, stemming from the country’s yearslong real estate crisis, and the threat of a trade war with the incoming Trump administration. At the same time, power supplies are plentiful, with fossil fuel and renewables output all at record levels. That’s creating room for regional governments to ease the cost burden on their local industries, albeit at the expense of energy suppliers.
Jiangsu province, the industrial powerhouse that surrounds Shanghai, trimmed its annual power contracts by 8.9% to 412.5 yuan ($56) per megawatt hour at the end of last month. Anhui to the west has cut by 10%, according to SDIC Securities Co., while Guangdong has lopped off 16%.
Lower rates will continue to shrink coal and gas profits, UBS analyst Ken Liao said Monday in Beijing. “If the property sector fails to recover, it will cap new installations.” he said. “Thermal power prices may drop 10% on average.”
China’s industrial firms saw their profits fall in November for a fourth straight month, leaving them on track for the sharpest annual decline since records began in 2000. The crash in coal prices to near four-year lows has cut mining profits by over a fifth from the previous year. The utilities that produce electricity have fared better because of cheaper feedstock costs.
But the drop in power prices mandated by local authorities will weigh on margins across the supply chain. And the changes afoot in the industry promise more pain to come. Solar firms in particular have been hammered by China’s bid to deregulate power trading, which will replace government-fixed pricing by 2030, after spot prices fell across multiple provinces, according to news outlet hxny.com.
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