As temperatures gradually drop, demand is about to reach a peak for coal usage. Coupled with the increasing extent of price inversion for imported coal, it is expected that while thermal coal prices may fluctuate in the short term, the potential for decline could be limited.
According to Zhito Finance APP, Haitong Int'l has released a research report indicating that coal consumption at power plants significantly increased week-on-week last week. However, national temperatures are warmer than in the same period last year, limiting the increase. As temperatures gradually drop, demand is about to reach a peak for coal usage, combined with increasing price inversion for imported coal. It is anticipated that while thermal coal prices may fluctuate in the short term, the potential for decline could be limited. Future attention should still be paid to the actual release of demand driven by economic recovery and macro policies. Looking forward, with the U.S. election results settled and domestic fiscal policies aligning with expectations, the coal industry's fundamentals remain robust. The peak season is expected to stabilize and rebound coal prices, while the mid-term price center is still likely to maintain a high level. The characteristics of low valuations and high dividends of coal companies are significant, continuing to pay attention to the long-term value of well-performing companies.
Haitong International's main points are as follows:
In October, production is expected to return to near historical peak levels, indicating a dual surplus of supply and demand for the remainder of the year.
Production: In October, national raw coal production reached 0.412 billion tons, with year-on-year and month-on-month variations of +4.6%/-0.6%. From January to October, cumulative production totaled 3.892 billion tons, a year-on-year increase of +1.2% (compared to 0.6% from January to September). Demand: In October, electricity generation, pig iron, and cement production saw year-on-year increases of +1.8%, +1.4%, and -7.9%, respectively; cumulative figures from January to October showed year-on-year changes of +1.9%, -4%, and -10.3% (compared to +1.9%, -4.6%, and -10.7% from January to September). According to the National Bureau of Statistics, the actual year-on-year growth in industrial value added above designated size in October was 5.3%, with a month-on-month increase of 0.41%; from January to October, there was a year-on-year growth of +5.8% (the same as from January to September). The Ministry of Finance, on the 13th, jointly announced with the State Taxation Administration and the Ministry of Housing and Urban-Rural Development about tax policies to promote the stable and healthy development of the real estate market, clarifying multiple tax incentives to support the real estate market.
Haitong Int'l believes that the supply side has now recovered to near historical peak levels, and the possibility of further increases in production in November and December is low. On the demand side, there has been significant improvement in steel and cement production in October, mainly due to seasonal and policy factors. With the arrival of winter peak season, electricity generation is also expected to maintain high growth, anticipating a dual surplus of supply and demand overall.
With significant increases in daily consumption at power plants and a larger import price inversion, port coal prices are expected to stabilize and rebound.
As of November 15, the coal price at Qin Port is 837 yuan/ton, with a weekly change of -10/-99 yuan/ton (growth rate -1.2%/-10.6%). The index for 5800 in Yulin, 5500 in Inner Mongolia Erdos, and Datong increased by 5/-4/-5 yuan/ton to 730/655/712 yuan/ton week-on-week. From November 8 to 14, the average daily coal consumption of power plants in 25 coastal and inland provinces was 5.4 million tons, which represents an increase of 1.4% compared to the same period last year (the previous week was 5.09 million tons, -0.4%); the average inventory stood at 135.47 million tons, up 5% from the same period last year (the previous week was 133.13 million tons, +3.3%). As of November 15, the inventory at the four northern ports was 18.11 million tons, an increase of 48/+5.04 million tons compared to the same period in 2023/2022 (the previous week showed a year-on-year decrease of -69/+5.63 million tons).
Haitong Int'l believes that the daily consumption of power plants significantly increased week-on-week last week, but national temperatures were warmer than the same period last year, so the increase was limited. However, as temperatures gradually decline, demand is expected to peak for coal consumption. Coupled with the widening gap in import coal prices, it is anticipated that thermal coal prices may show fluctuations in the short term, but the potential for decline may be limited. Continued attention is needed on economic recovery and the actual release of demand driven by macro policies, as well as the impact of safety regulations on production in major output regions.
The steel prices continue to decline in the off-season, while coking coal may maintain a downward trend but is unlikely to fall significantly.
Production: In October, national coke production was 41.2 million tons, down 0.9% year-on-year and up 4.8% month-on-month; the cumulative production from January to September was 0.406 billion tons, down 1.1% year-on-year (1-9 months was -1.2%). As of November 15, the second round of price reductions for coke has been implemented, with a cumulative reduction of about 100 yuan/ton, and the third round of price cuts is now underway; coking coal prices have temporarily stabilized. As of November 15, on the supply side, the operating rate of coking plants was 72.5%, down 0.4 percentage points; on the demand side, the average daily pig iron output of 247 steel mills across the country was 2.36 million tons, up 0.8% week-on-week and 0.2% year-on-year (the previous week was down 2% year-on-year).
Haitong Int'l believes that currently, the downstream of coal, coke, and steel has entered a demand off-season, and steel prices continue to decline. However, pig iron output remains stable overall, and there is still support from basic demand. Considering the contraction in steel mill profits, it is expected that the third round of coke price cuts may be implemented, though further significant declines are not likely. Regarding coking coal, due to the slowdown in downstream purchasing pace and adequate production and supply, coking coal prices are maintaining a weak and stable trend, and may still experience narrow fluctuations in the short term. However, looking at the medium term, given that the inventory of coking coal in the downstream remains low, improvement in marginal demand or events affecting the supply side may bring volatility. Future attention should be paid to the end-demand situation in the industry chain and the pace of inventory replenishment by steel mills.
Relevant symbols: (1) China Coal Energy, which is expected to see marginal improvements in operation and dividends; thermal coal leading player China Shenhua Energy (601898.SH), Shaanxi Coal Industry (601225.SH); (2) Inner Mongolia Dian Tou Energy Corporation (002128.SZ), China Coal Xinji Energy (601918.SH), Shanxi Coal International Energy Group (600546.SH), which are gradually realizing performance improvements and are expected to continue growing by 2025; (3) Huaibei Mining Holdings (600985.SH), a coking coal leader with low valuations and growth potential; (4) Tiandi Science & Technology (600582.SH) and Zhengzhou Coal Mining Machinery Group (601717.SH), which benefit from the implementation of coal production capacity reserve policies, the smart transformation of coal mines, and the Belt and Road Initiative Concept.
Risk warning: Significant decline in downstream demand, and the need to continuously track the impact of supply guarantee and price stability and production restriction policies.
