According to Futu Securities, the current trend of coal production is gradually developing toward stability. Policies emphasize mining safety production, and the safety supervision situation is becoming stricter. As for thermal coal, with the temperature beginning to rise, the daily electricity consumption of residents has increased, and the daily consumption of power plants has risen as expected. The expectation of peak season is expected to be realized, hot weather boosts sentiment, and traders' willingness to support prices has risen. The coal price is not expected to fall sharply. Regarding coking coal, the unexpected rebound of pig iron last week drove demand, and the second round of coke reduction has landed, suppressing the profit margin of coking enterprises.

Huafu Securities' main points are as follows:

Regarding thermal coal.

1. Regarding the production area: 1) Coal mines maintain a resumption trend, with a 93.7% operation rate of coal mines, an increase of 1.9ct week-on-week; 2) In June, the production safety monthly production safety supervision keeps pressure on production, and the space for expected production increase is relatively limited; 3) The production and transactions in the production area are general, and the price in the production area remains stable.

2. Regarding ports: 1) The downstream procurement of coal in the Bohai Sea and ports has decreased, with a daily average intake of 1.76 million tons, down 3.7% week-on-week; A daily average of 1.69 million tons was shipped out, down 3.13% week-on-week; 2) Last week, coal inventory at the Bohai Sea ports increased, with a total inventory of 26.32 million tons, up 3.43% week-on-week/ down 7.11% year-on-year; 3) The transaction at the port is relatively low, and the expectation of the peak season is still there. The coal price at the port is stagnant.

3. Regarding downstream: 1) Electric power demand is increasing. The daily consumption of the national power plant is 2.14 million tons, up 1.43% week-on-week and up 5.17% year-on-year. The inventory of power plants is relatively high year-on-year, and the inventory of power plants nationwide is 54.42 million tons, up 4.25% week-on-week and 25.1% year-on-year. 2) Non-electric power demand is weak and stable. The cement clinker operating rate is 40.41%, down 8.26% week-on-week and 21.34% year-on-year. Methanol's operating rate is 84.61%, up 2.85% week-on-week and 10.23% year-on-year. The urea operating rate is 83.09%, up 3.51% week-on-week and 1.05% year-on-year.

4. In the short term, the high temperature improves demand, and the price is stable and upward. As for the supply and demand, the safety supervision situation is severe, and the resumption of mining is relatively slow, resulting in tight supply. Last week, the unexpected rebound of pig iron boosted demand, and the second round of coke reduction landed, suppressing the profit margin of coking enterprises. The production of coking enterprises remained stable on a week-on-week basis, and the demand showed a stable trend. Regarding the price, the rebound of pig iron led to the stop of negative feedback running of the black series. Considering that the rainy season and hot weather are frequent and downstream procurement is relatively limited and the acceptance of high-priced coal is not high, the bank believes that as demand improves, the coal price will stabilize and rise.

5. In the medium to long term, the supply and demand of thermal coal may return to a tight balance in 2024, and the coal price has potential to rise. 1) From January to April, domestic thermal coal production was 1.218 billion tons, down 1.19% year-on-year; imported thermal coal was 119 million tons, up 13.04% year-on-year; the supply was basically stable, down 950,000 tons/-0.07% year-on-year. 2) The economy is continuously recovering, and the status of thermal power generation is unchanged. From January to April, the electricity generated by thermal power was 2.0622 trillion kWh, up 5.5% year-on-year. 3) In 2024, the quantity and price of coal contracts will remain stable as a whole, and long-term coal will play a role in stabilizing market supply and demand and coal prices. At the same time, the supply and demand of thermal coal may return to a tight balance in 2024, and the coal price has potential to rise.

Regarding coking coal.

1. Regarding coking coal, 1) Last week, the operating rate of coking coal mines was 88.57%, up 0.83% week-on-week and down 9.88% year-on-year; the operating rate of coal preparation plants was 68.95%, down 0.6% week-on-week and down 2.78% year-on-year. 2) The total inventory of coking coal was 23.83 million tons last week, down 0.9% week-on-week and up 3.63% year-on-year.

2. Regarding coke, 1) Last week, the utilization rate of coke capacity in steel mills was 87.54%, unchanged week-on-week and up 1.14% year-on-year; the daily output was 470,800 tons, unchanged week-on-week and up 0.45% year-on-year. 2) The coke inventory is at the bottom. The total coke inventory last week was 8.22 million tons, down 0.84% week-on-week and down 9.07% year-on-year.

3. Regarding steel, 1) Pig iron rebounds, and the operating rate of blast furnaces was 82.05% last week, up 0.55% week-on-week; the daily pig iron output was 2.39 million tons, up 1.51% week-on-week. 2) Consumption is weakening, and the total output of the top five steel products last Friday was 8.97 million tons, up 0.12% week-on-week; the total consumption was 8.88 million tons, down 0.4% week-on-week.

4. In the short term, the rebound of pig iron boosted demand, and the price was stable. As for the supply and demand, the safety supervision situation is severe, and the resumption of mining is relatively slow, resulting in tight supply. Last week, the unexpected rebound of pig iron boosted demand, and the second round of coke reduction landed, suppressing the profit margin of coking enterprises. The production of coking enterprises remained stable on a week-on-week basis, and the demand showed a stable trend. Regarding the price, the rebound of pig iron led to the stop of negative feedback running of the black series. Considering that the rainy season and hot weather are frequent and downstream procurement is relatively limited and the acceptance of high-priced coal is not high, the bank believes that as demand improves, the coal price will stabilize and rise.

Looking at the medium to long term, the supply and demand of coking coal may further tighten in 2024, and multiple factors will support the formation of coking coal prices. 1) Downstream demand has shrunk. In April, coke production was 38.49 million tons, a year-on-year decrease of 6.9%, and the production from January to April was 158.48 million tons, a year-on-year decrease of 2.1%; pig iron production in April was 71.63 million tons, a year-on-year decrease of 8%, and production from January to April was 284.99 million tons, a year-on-year decrease of 4.3%; crude steel production in April was 85.94 million tons, a year-on-year decrease of 7.2%, and production from January to April was 343.67 million tons, a year-on-year decrease of 3%. 3) Shanxi's coal production has shifted towards stable production to ensure supply, and the contraction of coking coal supply may surpass demand. In addition, factors such as historically low inventory of coke, strong overseas demand, and changes in trade tariff policies provide strong support for coking coal prices.

Recommendations:

In the thermal coal sector, companies that have stable performance, a high proportion of long-term contracts, and value dividend returns driven by market capitalization management assessment of central SOEs should be paid attention to: China Shenhua Energy (601088.SH), Shaanxi Coal Industry (601225.SH), and China Coal Energy (601898.SH).

With the continuous development of the economy and the rise of computing power, there is still an opportunity for thermal power generation due to strong demand for electricity. Companies that have high elasticity under demand stimulation should be paid attention to: Yankuang Energy (600188.SH) and Guanghui Energy (600256.SH).

In the coking coal sector, with the sufficient resilience of steel demand and the expected tightening of coking coal supply, there is a supply-demand gap. In addition, with the low inventory of coke and certain space to supplement, companies with steady performance and high dividends should be paid attention to: Shanxi Lu'an Environmental Energy Dev. Co., Ltd. (601699.SH), Shanxi Coking Coal Energy Group (000983.SZ), and Jizhong Energy Resources (000937.SZ).

Peak summer coal prices are expected to strengthen, and with the expectation of increased coal production in Shanxi, companies that may realize a balance between quantity and price should be paid attention to: Shanxi Coal International Energy Group (600546.SH) and Jinneng Holding Shanxi Coal Industry (601001.SH).

Risk warning: 1) Downstream demand is weaker than expected; 2) Coal imports exceed expectations; 3) Coal production exceeds expectations.