The coal sector fell sharply in intraday trading on the 27th. As of press release, Yanzhou Coal fell nearly 9%, Lu'an Huaneng, Ping Coal and Kailuan fell more than 6%, Haohua Energy, Hengyuan Coal Power, Shan Coal International and Shanxi Coking Coal fell more than 5%. China Shenhua Energy fell more than 4%.
On the face of the news, the National Development and Reform Commission said in a statement on the 26th that recently, coal prices have risen sharply, and there has been a strong reaction from all sectors of society. In accordance with the Price Law and relevant laws and regulations such as preventing profiteering, the National Development and Reform Commission is studying the establishment of a standardized coal market price formation mechanism to guide the long-term stability of coal prices in a reasonable range.
In addition, on October 26, the National Development and Reform Commission, together with relevant departments, deployed the clean-up and rectification of coal storage sites in coal producing areas. According to reports from relevant parties, there are a large number of unlicensed coal storage places around some major coal mines in Shanxi, Shaanxi and Inner Mongolia, which have not gone through the relevant formalities, providing convenience for illegal traders to hoard coal and seriously disturbing the normal operation order of the coal market. and safety, environmental protection and other problems are prominent. The National Development and Reform Commission, in conjunction with relevant departments, held a special video conference requiring that the three provinces and regions of Shanxi, Shaanxi and Inner Mongolia should step up efforts to organize investigation, strengthen supervision and rectification by classification, and standardize the establishment of a reporting system for legal coal storage sites. Coal storage sites that are not approved and have not gone through the formalities of land use, environmental protection and safety should be banned in accordance with the law, and illegal profit-making behaviors such as hoarding and driving up coal prices should be severely cracked down on the use of illegal coal storage places. To create a fair and orderly market environment for coal management.
Last night, there were rumors in the market that there would be a "price limit order" for coal. Experts believe that with the implementation of the policy of increasing production and ensuring supply, the contradiction between coal supply and demand has been greatly alleviated, and with the further release of part of the production capacity in the future, the demand for heating energy will be fully guaranteed. From the perspective of supply and demand fundamentals, coal prices have opened a downward channel.
Huatai believes that the issued policies to increase production may not be enough to fully meet the demand for coal in the coming winter, especially if coal transportation is disturbed by cold winter or heavy snow. The government is expected to introduce further policies to increase production, although there is much less room for implementation than it was a month ago. The government recently launched direct price intervention under the price law, which will periodically dampen market sentiment, but not fundamentals. Coal prices are expected to remain strong until next year's Lunar New year, with a significant correction in the second quarter of 2022, but are expected to stabilise to higher levels from July 2022, thanks to seasonal demand growth and limited new supply. Despite price intervention and price fluctuations, the valuation of China's coal industry is low, the coal price implied by stock prices is very low, and the "overweight" rating is maintained, led by Yanzhou Coal and China Coal Energy.