Zhitan Finance and Economics APP learned that Debon Securities released research reports stating that daily consumption remained at a high level of volatility, with the weakening of hydropower and the emergence of thermal power plant replacement effects, supporting short-term coal prices under terminal inventory digestion, and coal prices are expected to start a volatile rebound. As the peak season of 'Golden September and Silver October' approaches, although overall construction material consumption is lower than in previous years, there is a high probability of marginal increase in construction material consumption from September to October. With major policies such as 'dual control' and 'the two new' accelerating, physical work volume is expected to accelerate, and demand for coal in non-electric industries may see marginal recovery. After the coal industry's supply growth rate started to decline in 2023, coal prices experienced two significant pressure tests in May 2023 and April 2024 at 800 yuan/ton, with economic recovery combined with weak supply, the central coal price is expected to steadily increase year by year.

Terminal daily consumption remaining unchanged, thermal coal prices continue to rise.

A) Price and Event Review: This week, Qinhuangdao Q5500 thermal coal prices continued to rise to 866 yuan/ton (+1.05% month-on-month). In terms of production areas, a small number of previously relocated coal mines resumed operation, resulting in a slight increase in supply. At the pithead, transportation demand remained stable, with some terminals releasing a small amount of stocking demand, leading to a continued increase in pithead prices. In terms of ports, traders were cautious in their operations due to inverted shipping, railroad transportation volume remained low, and port inventories continued to decline. Downstream, daily consumption remains at a high level of volatility, with the weakening of hydropower and the emergence of thermal power plant replacement effects, providing support for short-term coal prices under terminal inventory digestion.

B) Short-term Price Viewpoint: Debon Securities determines that coal prices are expected to start a volatile rebound. i) Expectations of hydropower weakening: According to the National Climate Center, most of the Southwest region is expected to have less rainfall in September, with a predicted weakening of hydropower, and stronger thermal power plant replacement effects; ii) The peak season of 'Golden September and Silver October' is approaching: Although overall construction material consumption is lower than in previous years, there is a high probability of marginal increase in construction material consumption from September to October. With major policies such as 'dual control' and 'the two new' accelerating, physical work volume is expected to accelerate, and demand for coal in non-electric industries may see marginal recovery; iii) Non-electrical demand shows resilience: According to Mysteel data, the latest operating rates for methanol/urea are 88%/85%, reaching historically high levels for the same period.

C) Long-term Price Viewpoint: Debon Securities believes that thermal coal has strong support at 800 yuan/ton. i) From January to August 2024, the total national coal production was 3.052 billion tons, a year-on-year decrease of 0.3%, with an annualized production of only 4.578 billion tons, a slight decrease from 4.66 billion tons in 2023; ii) In 2024, long-term coal supply contracts have performance requirements for both supply and demand sides. In situations where there is no significant advantage in import price differentials, power plants are expected to prioritize the transportation of long-term contracts to guarantee performance. Therefore, the incremental increase in import volume in 2024 is limited.

Improvement in finished product destocking, with the first round of coke price increases being implemented.

A) Price and Event Review: This week, the main coking coal price at Jing Tang Port rose to 1770 yuan/ton (unchanged from the previous week). Regarding coking coal: in terms of production areas, the main producing areas are operating normally with a slight decrease in supply. As for downstream, the first round of coking coal price increases has been implemented, coking enterprises are still experiencing losses without significant improvement, supply remains tight. According to Mysteel data, this week the independent coking enterprises capacity utilization rate was 69.05%, down by 0.13 percent compared to the previous week. Concerning coke: the first round of price increases for coke has been implemented, with wet quenching coke prices up by 50 yuan/ton, and dry quenching coke up by 55 yuan/ton. On the downstream side, with the onset of the traditional peak season (Golden September, Silver October), the destocking situation has improved, some steel mills have restarted production. This week, the average daily output of 247 blast furnaces was 2.2383 million tons, an increase of 0.0045 million tons from the previous week. Before the National Day holiday, downstream steel mills may need to replenish their stockpiles. Debon Securities predicts that the prices of coke and coking coal may stabilize.

B) Short-Term Price Outlook: Debon Securities believes that the prices of coke and coking coal will stabilize at the bottom. i) High operation of blast furnace production & low steel inventory, under the need to replenish stocks, there is continuous raw material demand.

C) Medium- to Long-Term Price Outlook: Debon Securities believes that with the improvement in macro expectations in 2024, the prices of coke and coking coal are expected to rebound. i) In May 2024, as real estate policies become intensive, including setting up a 300 billion indemnificatory apartment refinancing program, reducing the housing provident fund loan interest rates for various terms by 0.25 percentage points, lowering the minimum down payment ratio for personal housing loans at the national level, the demand for black materials is expected to stabilize. ii) In July, the National Development and Reform Commission and the Ministry of Finance issued the "Some Measures to Strengthen Support for Large-scale Equipment Renewal and Replacement of Consumer Goods", proposing to coordinate the arrangement of around 300 billion yuan of ultra-long special treasury funds, strengthen support for large-scale equipment renewal and replacement of consumer goods. Investment driving effect is significant, long-term demand for coking coal is expected to be guaranteed.

Investment Recommendations: Bullish on the coal sector's investment value, recommending three directions:

1) Quality Dividends. Quality companies have the ability for long-term dividends, and with the decrease in capital expenditures, there is continuous room for dividend growth. Recommended: Shaanxi Coal Industry (601225.SH), Shanxi Coal International (600546.SH), China Coal Energy (601898.SH), suggested to pay attention to China Shenhua Energy (601088.SH), Yankuang Energy (600188.SH), and others; 2) Long-term Increment. Coal capacity increments are scarce, integrated coal and electricity development aligns with policy guidance, synergistic development smoothes out the risk cycle. Recommended: China Coal Xinji Energy (601918.SH), Gansu Energy Chemical (000552.SZ), Inner Mongolia Dian Tou Energy Corporation (002128.SZ), Beijing Haohua Energy Resource (601101.SH), Guanghui Energy (600256.SH), Wintime Energy (600157.SH), suggested to pay attention to Guizhou Panjiang Refined Coal (600395.SH), Shaanxi Energy (001286.SZ), SUNEN Technology (600925.SH), and others; 3) Dual Coke Elasticity. With the expectation of recovery, after the significant price decline in the previous period, there is room for rebound in dual coke prices. Recommended: Shanxi Lu'an Environmental Energy Dev.Co.,Ltd (601699.SH), Pingdingshan Tianan Coal Mining (601666.SH), Huaibei Mining Holdings (600985.SH), China Risun GP (01907), suggested to pay attention to Shanxi Coking Coal Energy Group (000983.SZ), Jizhong Energy Resources (000937.SZ). Risk Warning: Domestic economic recovery progress is slower than expected; Overseas demand recovery is slower than expected; Decline in crude oil prices dragging down coal chemical product prices.