The Zhitong Finance App learned that Huatai Securities released a research report saying that 2Q is the traditional low demand season for the coal industry until the peak summer season, and the downward pressure on coal prices may continue until 2Q24. Looking at the whole year, coal imports will remain high, global natural gas prices remain low, and new energy installations will squeeze overseas coal demand, although the short-term price advantage of imported coal will drastically reduce or affect imports in April-May. In an environment of off-season demand, stocks that are currently at a high level may face further pressure to be removed from storage. Overall supply and demand are being relaxed, and coal price support is weak.

Huatai Securities's views are as follows:

1Q24: Demand is weak after the holiday season, and coal prices are under pressure

Since this year, the price of thermal coal has first moved downward due to an environment where both supply and demand were weak before the holiday season, and then rebounded under the resonance of cold waves in the south, expectations of a recovery in demand after the holiday season, and slow resumption of coal mine production. Although the average daily domestic coal production fell 5.6% year on year in January-February, the further increase in coal imports kept overall supply at a high level; combined with the slow release of demand in mid-March, coal prices entered a downward channel. Currently, the price of 5,500 kilocalories of thermal coal in Qinhuangdao is 827 yuan/ton, down about 100 yuan/ton from the beginning of the year; the average price of thermal coal in Qinhuangdao fell 232/56 yuan/ton year-on-year in 1Q24. The price of coking coal remained basically flat, but the Changxie Index declined year-on-year. The price of jet coal fell by 650/203 yuan/ton, and the medium- to long-term contract price fell 18/2 yuan/ton from month to month. The downward shift in the coal price center will curb the performance of coal companies in the first quarter. Coal companies with relatively high medium- to long-term contracts will be more stable, but the performance of companies with a relatively high share of spot sales will be pressured to a year-on-year decline.

Coal supply may remain resilient

In January-February, domestic coal production fell 4.2% year on year to 705 million tons. Among them, Shanxi fell 18.1% year on year to 177 million tons due to the “three super” remediation, and production contracted significantly. The bank believes that although production may shrink marginally to a certain extent in the next quarter as safety supervision is strengthened, in terms of pace, coal production is gradually recovering. Safety inspections became normalized after the two meetings, and the operating rate of coal mines in production areas clearly rebounded. The bank believes that although the policy tone has changed from “increasing production and stable supply” to “stabilizing production and supply,” it has experienced two consecutive years of intense stimulus to increase production. The “increase” to “stability” of production does not necessarily mean a substantial decline in supply. The “guarantee supply” core of the policy may continue, and overall supply will still maintain a certain degree of resilience in line with demand, especially considering that coal imports have remained high and that have remained high in recent years.

The peak heating season is over, and demand for non-electricity is weak

After the Spring Festival, along with the impact of the cold tide in the south, the market's expectations for “three gold, silver, four” were released early, and coal prices rebounded briefly. With the withdrawal of coal for heating in mid-March, support for non-electricity coal was insufficient, and cement and steel production declined year on year. Currently, in an environment where demand for housing construction and infrastructure is under pressure, the process of resuming construction activities is lagging behind. At the end of March, the cement shipment rate decreased by 14 percentage points year on year, and the average daily production of iron and water was 2.21 million tons, which is lower than the average of 2.36 million tons for the same period in the past three years. In particular, due to delays in issuing local bonds and the suspension of infrastructure construction and slow construction in 12 provinces and cities, it may be difficult for municipal infrastructure demand to improve significantly. The bank expects that only chemical coal will remain stable in the non-electric coal sector, and there is limited room for improvement in overall non-electricity demand. In terms of demand for electricity and coal, the current inventory level of terminal power plants in 25 provinces is sufficient; in addition, as precipitation improves and wind power output increases, thermal power will also be squeezed and replaced to a certain extent.

April-June off-season demand will test coal price support

2Q is the traditional low demand season for the coal industry until the peak summer season, and the downward pressure on coal prices may continue until 2Q24. The bank believes that in the absence of major supply disturbances, supply relative to demand will remain generally relaxed. As production in Shaanxi and Mongolia continues to be high and production in Ganjiang has increased dramatically, overall production remains at a high level, although coal production in the Shanxi region may have declined slightly. The bank believes that coal imports will remain high throughout the year, that global natural gas prices will remain low, and that strong new energy installations will squeeze overseas coal demand, although the short-term price advantage of imported coal will drastically reduce or affect imports in April-May. In an environment of off-season demand, stocks that are currently at a high level may face further pressure to be removed from storage. Overall supply and demand are being relaxed, and coal price support is weak.

Risk warning: supply-side disruptions; demand recovered beyond expectations.