China power demand growth in retreats 3.0% y-y

Due to industrial output slowdown.

National power demand rose 3.0% y-y in July (7M14: +4.9%) vs. 5.9% y-y in June (1H14: +5.3%), with the weaker growth was largely due to the slackened industrial consumption.

According to a research note from Nomura, this is amid the slowdown of domestic economic growth.

Industrial output growth was noted as having gone down 0.2pp m-m to 9.0%.

Here’s more from Nomura:

Based on China Electricity Council (CEC) statistics, national power output in July rose 3.3% y-y (7M14: +5.5% y-y) vs. 5.7% y-y in June (1H14: +5.8%).

Accordingly, power demand grew 3.0% y-y in July (7M14: +4.9%), down from 5.9% y-y in June (1H14: +5.3%).

The largest y-y gains in power output for July were in Sichuan (+47.9%), Yunnan (+34.2%), Beijing (+27.7%), Xinjiang (+26.9%) and Shanxi (+13.7%).

Among the IPPs under our coverage, Datang has the highest exposure to these regions, which account for 21.1% of its total attributable capacity.

Growth in Shanghai (-36.3%), Zhejiang (-18.0%), Hunan (-16.7%), Jiangxi (-12.6%) and Hubei (-8.4%) lagged the national average.

CPID has the highest exposure to these regions, which account for 25.6% of its total attributable capacity.

In July 2014, power demand growth in secondary industry slowed to 3.0% y-y vs. 5.2% y-y in June, mainly due to the weak domestic economic growth with a 0.2pp m-m decrease in the industrial output growth to 9.0%.

Demand from tertiary industry and the residential sector also weakened in July, at 4.6% and 0.5% y-y (vs. 9.0% and 8.1% in June), respectively.

This resulted in overall demand growth at 3.0% y-y in July (7M14: +4.9% y-y) vs. 5.9% y-y in June (1H14: +5.3% y-y)

Overall, the softened power demand growth in July is in line with our expectation.

Given we expect domestic economic growth to rebound in 2H14 (GDP growth to be 7.5%/7.6% in 3Q/4Q vs. 7.4%/7.5% in 1Q/2Q, respectively, per our economist), we retain our 2014F power output growth forecast at 6.5% (vs. 7M14 of 5.5%).