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Huaneng Power International Inc, a unit of China's biggest electricity producer, unexpectedly posted an increase in first-half profit after ramping up output to meet demand in the fastest-growing major economy.

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The utility increased generation by 38 percent as China's economy rebounded from the slowest growth in seven years to expand 11.1 percent in the first six months. Gains from higher output were offset by a surge in Huaneng's coal costs while state-set power tariffs remained unchanged since November.

"If the company was able to maintain profits at about the same level as the first half last year it's because it has managed to control coal costs," said Keith Li, an analyst at CIMB-GK in Hong Kong. "If Huaneng can secure cheaper coal contracts rather than pay spot prices, it can lower costs."

The average spot price of coal at Qinhuangdao port, a Chinese benchmark, rose 28 percent from a year earlier to 709 yuan a metric ton in the first half, data from the China Coal Transport and Distribution Association show. About 80 percent of China's electricity is produced by coal-fired power stations.

Full-Year Earnings

The company reported first-half net income of 2.03 billion yuan ($299.55 billion) under Chinese accounting standards earlier Tuesday. Operating revenue increased 45 percent to 48.85 billion yuan, according to the statement released by the Hong Kong stock exchange.

Huaneng may post a 21 percent drop in net income this year to 3.87 billion yuan, according to the median estimate of 14 analysts compiled by Bloomberg.

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