The Zhitong Finance App learned that Everbright Securities released a research report saying that in 2024, the supply of coking coal is limited, demand is likely to increase, the cost of imported coking coal will continue to improve, and the coking coal supply and demand pattern continues to improve, and Changxie has raised prices in the first quarter. It is recommended to pay attention to the allocation value of the coking coal sector and recommend Shanxi Coking Coal (000983.SZ), the leading coking coal company in the Shanxi region with a high share of coking coal sales. It is recommended to focus on the coking coal company Pingmei Co., Ltd. (601666.SH), etc.

Incidents:

According to Mysteel's research, coking coal long-term coking prices rose in the first quarter of 2024 in the first quarter of 2024. Among them, low-sulphur main coking coal increased 200 yuan/ton (+10%), 1/3 coking coal increased 200 yuan/ton (+11%), poor coal increased 100 yuan/ton (+8%), gas coal increased 100 yuan/ton (+9%), gas and coal rose 100 yuan/ton (+9%); the price of coking coal rose in the first quarter of 2024. An increase of 150 yuan/ton (+8%) per ton.

▍ The main views of Everbright Securities are as follows:

After the price of coking coal increased, the spot price still had a premium compared to Changxie.

According to Mysteel statistics, on January 2, 2024, the factory price of low-sulphur coking coal in Luliang, Shanxi Province, was 2,210 yuan/ton; in the first quarter of 2024, the price of low-sulphur main coking coal in Shanxi was 2,210 yuan/ton; the factory price of 1/3 coking coal in Linfen, Shanxi was 2,300 yuan/ton; in the first quarter of 2024, the price of 1/3 of coking coal in Shanxi was 2,035 yuan/ton.

Resource endowments and safety incidents limit the release of coking coal production capacity and production.

From January to November 2023, domestic coking coal production was 450 million tons, -0.1% year on year, and raw coking coal production was 1.22 billion tons, +1.3% year over year. The growth rate was lower than the growth rate of raw coal production (+3.5%). According to Fenwei's forecast, the country added a total of 503 million tons of coal production capacity in 2023-2027, of which only 88 million tons were coking coal production capacity;

According to incomplete statistics from the Coal Safety Network, in the first 11 months of 2023, a total of 35 coal mine accidents occurred in Shanxi, with a cumulative total of 67 deaths, which is significantly higher than the same period in 2022 (55) and the same period in 2021 (13 people). Shanxi produced 710 million tons of coking coal in 2022, accounting for 54% of the country's coking coal production.

Pig iron production is expected to grow positively in 2024, supporting high and strong demand for coking coal.

(1) Almost all coking coal is used in iron making. China's pig iron production accounts for 66% of the world's production in 2022, and the growth rates of pig iron production in 2022 and 2023 were -0.8% and +1.9% respectively. The growth rate has exceeded the crude steel production rate for two consecutive years. This is mainly due to the slight advantage of the steel industry. Steel mills pay more attention to cost reduction and efficiency, and use more pig iron, which is relatively inexpensive, rather than scrap steel;

(2) Facing 2024, it is expected that China's steel industry will continue to be marginally profitable. The cost advantage of pig iron over scrap steel will continue to be maintained, and crude steel production is expected to remain flat. Therefore, the growth rate of pig iron production will continue to exceed that of crude steel, achieving positive growth, thereby supporting coking coal demand.

Coal import tariffs will resume in 2024, and the amount of coking coal imports in China may decrease.

(1) According to the “Import and Export Tariff Rules of the People's Republic of China (2024)”, import tariffs on coal will resume on January 1, 2024; (2) From January to November 2023, China imported 90.73 million tons of coking coal, an amount involving tariff adjustments of 85.13 million tons (accounting for 94% of total coking coal imports and 18.8% of domestic production); (3) The last time China cancelled the provisional tariff rate of zero import tariffs was in October 2014. In 2015, China's coking coal imports fell 24% from month to month.

Risk analysis:

The economy has stalled and declined; hydropower output has exceeded expectations; overseas coal prices have dropped sharply; and the release of production capacity in the mines under construction has exceeded expectations.