Since the fourth quarter, the early release of winter storage demand has driven coal prices to perform beyond expectations. As the peak season progresses, the industry may still experience periodic supply tightness, and the Q4 coal price increase could exceed 15% quarter-on-quarter. Currently, policy support, coal price trends, and earnings expectations for the sector are all improving, indicating that the Q4 rally in the coal sector is likely to be sustained.
According to Zhitong Finance APP, CITIC Securities released a research report stating that net profits in Q3 2025 are expected to increase by approximately 22% quarter-over-quarter (QoQ), while the year-to-date decline for the first three quarters is approximately 29%. On a QoQ basis, thermal coal and anthracite companies have shown significant performance improvement, although coking coal companies continue to experience declining performance. Since the fourth quarter, early release of winter stockpiling demand has driven coal prices to exceed expectations. As the peak season progresses, the industry may still experience temporary supply shortages, with Q4 coal prices potentially increasing by over 15% QoQ. Currently, policy, coal prices, and earnings expectations for the sector are all improving, indicating sustainability for Q4 sector performance.
The key viewpoints of CITIC Securities are as follows:
Net profits of sampled listed companies rose QoQ in Q3, but there was noticeable divergence across sectors.
Based on aggregated net profit comparisons, the financial performance of coal listed companies declined by 29% year-on-year (YoY) during the first three quarters, whereas Q3 standalone net profits grew 22% QoQ. The QoQ increase was mainly driven by rising market coal prices and improved profitability among thermal coal enterprises. By coal type, the aggregated net profits of thermal coal/metallurgical coal/anthracite sectors changed +29%/-52%/+34% QoQ, respectively, while coke companies generally incurred losses, highlighting clear divergence between sectors.
Gross margins improved slightly QoQ in Q3, while operating cash flow showed significant growth.
During the first three quarters, revenue/costs of listed companies changed -15.67%/-13.72% YoY, with gross margins declining by 1.62 percentage points. In Q3 alone, revenue/costs increased +11.45%/+9.97% QoQ, and gross margins improved by 0.95 percentage points QoQ. Operational conditions in the sector broadly improved, with decreases in accounts receivable ratios and inventory ratios QoQ. Average operating cash flow per share in the sector rose from RMB 0.29/share in Q2 to RMB 0.45/share. Although capital expenditure in the sector increased by 12% YoY during the first three quarters, one-quarter of companies remained in a net cash position as of Q3, indicating potential for higher cash dividends. By the end of Q3, the balance of special reserve items for sampled listed companies decreased by nearly 2% YoY, reflecting proactive efforts to control costs related to safety and maintenance.
Short-term outlook: Focus on changes in policy intensity on the supply side; winter stockpiling demand supports stronger-than-expected coal price performance.
Since Q3, domestic coal production growth has gradually slowed due to safety supervision and overproduction inspections. These factors constraining supply releases are expected to persist into Q4. On the demand side, temperatures dropped rapidly in northern regions in October, leading to early release of winter stockpiling demand. Considering the prolonged winter this year, additional restocking demand may arise, and supply could face another shortfall in December. We expect average Q4 thermal coal prices at ports to rise by over 15% QoQ, with peaks potentially exceeding RMB 850/ton. Coking coal prices are also expected to remain high, with Q4 averages increasing by nearly RMB 200/ton QoQ. If enforcement of policies such as overproduction inspections tightens further, coal prices could exceed expectations.
Risk Factors:
Macroeconomic volatility impacts coal demand and prices; the implementation of supply contraction measures falls short of expectations, or the relaxation of safety inspections leads to increased supply; a systematic decline in overseas energy prices suppresses domestic coal prices.
Investment Strategy: Three layers of improving expectations suggest that the Q4 sector performance is likely to be sustainable.
The sector’s Q3 results improved sequentially as coal prices rebounded. In the fourth quarter, supported by peak-season months and weather-related factors, coal prices may rise further from current levels; if supply contraction policies are enforced more stringently, coal prices could exceed expectations. Against the backdrop of improved policy, coal price, and earnings expectations, the sector’s Q4 rebound is expected to have sustainability. On one hand, it is advisable to focus on dividend-leading thermal coal stocks with both offensive and defensive characteristics; on the other hand, attention can also be given to low-valuation companies with strong earnings elasticity.