In early trading on February 22, the coal sector continued to strengthen. As of press release, South Gobi (01878) had risen more than 9%, Yancoal Australia (03668) had risen more than 3%, and China Coal Energy (01898) and China Shenhua (01088) had risen more than 2%.
The Zhitong Finance App learned that in early trading on February 22, the coal sector continued to strengthen. As of press release, South Gobi (01878) had risen more than 9%, Yancoal Australia (03668) had risen more than 3%, and China Coal Energy (01898) and China Shenhua (01088) had risen more than 2%. According to the forecast of the Central Meteorological Observatory, due to the cold tide, the central and eastern part of China will continue to experience widespread rain, snow, and freezing weather on February 20-26. This time, the low temperatures will last for a long time, and heavy snowfall and freezing rain will affect a wide range of areas. Additionally, the Shanxi Provincial Emergency Management Department, the Shanxi Bureau of the State Mine Safety Supervision Administration, and the Shanxi Provincial Energy Administration issued the “Notice on Launching Special Remediation of the “Three Superintendents” and Covert Work Surfaces in Coal Mines. Everbright Securities believes that the incident will affect the supply of coal in the Shanxi region in the short term, especially the supply of coking coal, which will benefit the price of coking coal.
According to the forecast of the Central Meteorological Observatory, from February 20 to 26, the central and eastern regions of China will experience cold tides and widespread rain, snow, and low temperature freezing weather. Compared with the pre-holiday rain and snow freezing process, the overall intensity and sustainability of the freezing rain was not as strong as the previous one, but the range and intensity of rain and snow in the two processes were basically the same. This time, the cooling was greater, the low temperature lasted longer, the effects of freezing rain were wider, and the rainfall in the south was stronger.
Recently, three departments including the Shanxi Provincial Emergency Management Department issued the “Notice on Launching Special Remediation of the “Three Supermarkets” and Covert Work Surfaces in Coal Mines, and some group coal mines in Shanxi have begun issuing production reduction requirements. Remediation highlights include whether coal mines organize production in a balanced manner, whether they are capable of issuing annual and monthly raw coal production plans, whether annual raw coal production exceeds 10% of the approved (design) production capacity range, and whether monthly raw coal production exceeds 10% of the approved (design) production capacity.
Stimulated by this news, the main coking coal futures contract of major trading companies rose by nearly 3% in the intraday period.
In response, Huafu Securities pointed out that the current rectification was strong. The self-inspection found that the problem required immediate reform. The main person in charge of the coal mining enterprise is responsible for the results of the self-inspection. Currently, coal mine safety supervision is becoming stricter, and production may be cut in some mines, which is expected to have a certain impact on the coal supply in the Shanxi production area. At the same time, the bank expects a basic balance between global coal supply and demand in 2024-2026. Under the guarantee of the long-term cooperation policy, domestic coal companies' profits are expected to remain high and stable, and characteristics such as high dividends and central enterprises are expected to catalyze the continued increase in coal stock valuations.
Since 2023, energy security policies have continued to gain strength. With the release of advanced coal production capacity, raw coal production has steadily increased, coal imports have remained high, and prices in the coal market have declined amid fluctuating prices.
Although the coal market price dropped significantly in 2023 compared to 2022, it is still relatively high, and prices in Changxie have basically remained stable. With the gradual improvement in the balance between supply and demand, the bottom of coal prices seems to have stabilized. From early August 2023 to late December 2023, overall coal prices were on an upward trend. It is expected that in 2024, limited supply increases and continued resilience in electricity demand will support coal prices.
Furthermore, according to Steel Union data, as of February 16, the operating rate of the 523 coking coal sample mines was only 51.7%, which is significantly lower than the same period in history; the latest data after the holiday season showed that the operating rate of 110 sample coal washing plants was only 58.8%. Although it has rebounded from the holiday period, the overall level is still far below the same period in history.
On the demand side, according to Societe Generale Securities estimates, the growth rate of thermal power generation will be around 3% in 2024. Steel production is expected to continue to grow slightly, and there is still room for improvement in coal consumption in the coal chemical industry. Second, considering the gradual investment of trillions of treasury bonds, the central bank is increasing its support for real estate credit. Downstream infrastructure and real estate are expected to improve marginally in 2024, which supports demand for coal.
Guosheng Securities Research Report said that in 2024, the basic work goal of Shanxi Province is to release advanced coal production capacity in accordance with the law, make every effort to stabilize coal production, etc., and there is no clear room for coal production growth. This shows that the bottlenecks in continuing to increase production under production safety pressure in Shanxi Province are highlighted. The special coal mine production remediation work in Shanxi Province will mainly affect the supply of coking coal in the country. The scarcity of coking coal resources is once again highlighted. As consumer demand for finished materials gradually recovers after the Spring Festival, the price of main coking coal is expected to open up upward space.
Related concept stocks:
South Gobi (01878): South Gobi is a coal supplier listed in Toronto and Hong Kong. It is mainly dedicated to the production, logistics and sales of coal. Its main business location is the Aobaut Tauragai Coal Mine in Mongolia, 46 km from the border between China and Mongolia.
Yancoal Australia (03668): Yancoal Australia announced that in the September quarter of 2023 (third quarter), according to a 100% benchmark, raw coal production was 16.1 million tons and commercial coal production was 12.1 million tons. Equity caliber commercial coal production is 9.3 million tons, and equity caliber coal sales volume is 8.6 million tons.
China Coal Energy (01898): On November 13, the company stated on the investor A-share investor interactive platform that the Libi coal mine construction project is progressing in an orderly manner. It is expected to enter trial production by the end of 2025, and production is expected to be completed in about 1 year.
China Shenhua (01088): China's largest coal producer. The company said in November that as the country's latest round of work to optimize the layout of power points progressed, the company seized the thermal power development window period during the “14th Five-Year Plan” period and carried out renovation and expansion projects at existing high-quality power points. The power plant project currently under construction by the company is expected to be completed and put into operation in 2025 or before.