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The Winners and Losers in Asian Markets From Energy Crunch By Bloomberg


© Reuters The Winners and Losers in Asian Markets From Energy Crunch

(Bloomberg) — The global spike in energy prices and China’s crackdown on power consumption look set to create more losers than winners in Asian equities as production costs surge and output takes a hit.

Chinese stocks dominate the watch lists of traders, given that the country is the world’s biggest consumer of electricity and largest exporter of goods. Apple Inc. (NASDAQ:) has factories that produce everything, from toys to essential components. The fallout has affected Tesla Inc (NASDAQ:) Inc.   

The region’s coal and producers will benefit in the short term from higher prices while their green-energy rivals should gain in the longer run. High-energy sectors producing metals or chemicals could be the worst affected. 

The shortage was caused by the rising demand and lower global supplies of hydrocarbon. China’s increasingly aggressive push to curb emissions along is amplifying the immediate impact on businesses.

More than half of China’s mainland provinces are limiting electricity use, forcing factory shutdowns that are reverberating through global supply chains. 

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Here are some of the stocks and sectors to watch:

Gas Plays

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 (OTC:) 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 (OTC:) 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. He said that gas distributors might not be able pass the increasing prices because they are controlled by China.

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 Energy Group Co.

Stocks of coal-based power generators such as China’s Huadian Power International Corp., Huaneng Power International (NYSE:) 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 (NYSE:). In a September 26 note, Pierre Lau and Lesley Li, analysts wrote. The analysts note that consumers will not receive the full impact of rising prices for coal. 

Electricity Users

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.

ASE Technology Holding Co (NYSE) is an Apple supplier. According to ASE Technology Holding Co (NYSE:), a Kunshan City facility will cease production between Sept. 27 and Sept. 30, due to power limitations. Tesla suppliers Eve Energy Co., Ningbo Joyson Electronic Corp. are two other stocks worth monitoring for potential similar risk. Among Chinese carmakers, traders are watching BYD Co (OTC:)., Geely Automobile Holdings (OTC:) 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 (NYSE:). Ming Hsun Lee and other analysts wrote a note on Sept. 27, 2007.

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 hit a new record Tuesday, after rising 21% over five sessions. Huaneng Lancang River Hydropower Inc. Fujian Mindong Electric Power Ltd., Cecep Wind-Power Corp. are other stocks that are under scrutiny. 

In a commentary published on Tuesday, the government-backed Economic Daily stated that the best way to fix tight power supply is to transition 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.

©2021 Bloomberg L.P.