Gassed up

From "China – Mysterious gas" by Stephen Green, Standard Chartered senior China economist, November 16:
Car sales in China are booming, but gasoline consumption seems to be stuck in the slow lane. Skeptics point to this odd turn of events as evidence that cars are being bought en masse by state firms and government departments… We believe that there are many more reasonable explanations:

– People are buying smaller, more fuel-efficient cars – and retiring bigger, less fuel-efficient cars…

– The slowdown in freight traffic in 1H 2009 probably affected [fuel] demand…

– Some 40% of total gasoline consumed in China goes into industry – so the sharp slowdown in industrial activity since 4Q 2008 has probably had a big effect on gasoline demand…

– People are traveling less, perhaps as a result of slower income growth… This likely slowed down gasoline demand from small buses, one-half of which guzzle gas…

– Slower income growth this year also probably means that people are driving their cars less…

– Local government budgets have been constrained this year by the Ministry of Finance…

– The conversion of taxi fleets and other vehicles across China to using liquefied natural gas (LNG) may [also] be having an impact at the pump.
 

From "Chinese power sector: A one-hit wonder?" by Carol Cao, Macquarie Equities Research analyst, November 11:
In our base case for 2010, we have assumed that the government will "proactively" hand out an on-grid tariff hike on expectations of rising coal prices. Such a tariff hike is expected to pass through 70% of the average coal price rise in 2010 for each of the independent power producers (IPPs), effective from 1 January 2010. In our view, this is the best outcome and, hence, the bull case for all IPPs, because the tariff adjustment takes into account forward-looking expectations of coal price movements. However, IPPs are still expected to bear 30% of the fuel cost increase, which is consistent with the coal-power tariff-linking mechanism that is theoretically the standing guideline… We have not factored in small asymmetrical on-grid adjustments that are expected by the market in the near term due to the uncertainties of the amount and geographical differences of the adjustments. In this case, as market speculation has suggested, the government will cut the on-grid tariff of those more profitable power plants while raising the on-grid tariff of those less profitable power plants… We are expecting total power demand in 2010 to grow at a rate of ~7%… driven by the recent upgrade of base materials and commodities production such as steel, cement and aluminum in our power model…We are expecting total power capacity to grow at a rate of ~5% in 2010.