International coal prices have a relatively weak impact on China, mainly because unlike crude oil and natural gas, there is no global pricing, especially the United States as the largest variable in marginal demand elasticity. China's coal demand accounts for 56% of the world and relies on imports for only about 10%.
According to the WiseNews app, Guotai Junan Securities released a research report stating that the coal industry has undergone a profound structural change in supply and demand, gradually 'public utility', and also reflects the investment strategy problem of high dividend assets that are more favored by the market under the background of declining risk-free rate of return in asset shortages. Unlike crude oil and natural gas, China's coal demand accounts for 56% of the world and relies on imports for only about 10%. It is only a supplement that the rise and fall of China's coal prices reflects more changes in the supply and demand pattern of China's coal industry. Therefore, it is expected that this round of US rate cuts will have limited impact on domestic coal prices; high dividend assets are still important long-term investment directions.
The coal industry has undergone a profound structural change in supply and demand, gradually 'public utility', and also reflects the investment strategy problem of high dividend assets that are more favored by the market under the background of declining risk-free rate of return in asset shortages. We recommend high-quality leading companies with high profitability, stability and predictability, such as Shaanxi Coal Industry and China Shenhua. We recommend Xinji Energy, which integrates coal and power, benefiting from Shaanxi energy; recommend long-term coking coal: Hengyuan Coal and Electricity, Pingdingshan Tianan Coal Mining, Huaibei Mining Holdings, and Shanxi Coking Coal; recommend China Reform leading central enterprises: China Coal Energy; recommend Shanxi Coal International, which has reached a turning point in its fundamentals.
This round of US rate cuts will have limited impact on domestic coal prices, and the rise and fall of China's coal prices more reflects changes in the supply and demand pattern of China's coal industry. As the pressure of the US economy declines, the market begins to trade that the US economy is rapidly entering a recessionary cycle, and also worries about the disturbance of global economic recession on energy prices, and then the impact on China's coal industry. Guotai Junan Securities believes that the global energy prices are mutually influential, and the correlation between coal prices and natural gas is higher when traced back in history. Moreover, in each cycle of US rate cuts, the global coal prices have fallen more than they have risen, but the overall drop is less than 15%.
At the same time, international coal prices have a relatively weak impact on China, mainly because unlike crude oil and natural gas, there is no global pricing, especially the United States as the largest variable in marginal demand elasticity. China's coal demand accounts for 56% of the world and relies on imports for only about 10%. It is only a supplement that the rise and fall of China's coal prices reflects more changes in the supply and demand pattern of China's coal industry. Although it has been found in the past that China's coal imports have increased greatly during each US rate cut, Guotai Junan Securities believes that the global coal supply background has changed greatly during this round of US rate cuts, mainly due to: the global coal production has entered a rapid decline cycle; internal disintegration in Asia, China's output is restricted by the 'Coal Mine Safety Production Regulations', existing capacity utilization has reached its limit, and Indonesian domestic demand has increased, and India's demand has a predictable growth, under the background of the trend of declining international marine trade, the demand of Indonesia and India may erode China's import market.
The possibility of a rate cut in September has greatly increased, and high dividend red envelope assets are still an important long-term investment direction. Guotai Junan Securities believes that with the weakening of US economic data, the possibility of entering a rate cut cycle in September has greatly increased, and combined with the downward trend of domestic interest rates, high dividend red envelope assets may still be one of the important investment directions for a long time to come. At present, the core issue of the strategy for dividend assets is the reconstruction of investment logic in various industries and the testing of downside risks.
The coal sector has strong resilience at the bottom, and the 'dividend of coal' has been confirmed again under recent pressure tests. The coal sector has retreated by 15% from June to present, slightly higher than the retreat of the SSE Dividend Index, causing market concerns about whether the dividend logic of the coal sector has changed. Guotai Junan Securities believes that by 2024, coal has already tested the greatest mid-term pressure in the off-season and the greatest pressure in the peak season, and has tested the price performance under extreme demand pressure ahead of most industries. Although the overall top of the coal price is lower than expected, the bottom is currently very resilient. Since the impact of the supply-side reform in 2016, combined with the medium-term policy goal of 'dual carbon' and the 'Coal Mine Safety Production Regulations', it has jointly interpreted the 'supply big cycle'. Even under extreme pessimistic assumptions on the demand side, coal may still be one of the most resilient sectors, and the 'dividend of coal' can be confirmed again.
Risk Warning: Macro-economic growth is lower than expected; large-scale import of coal; supply release exceeds expectations.
