The Zhitong Finance App learned that Guotai Junan released a research report saying that the bottom of coal prices confirmed that the profits of coal companies are guaranteed, and that the value of high dividends and high dividend allocation for listed coal companies is highlighted, helping to reshape the valuation of the coal sector. Furthermore, as a procyclical industry, coal will benefit from economic recovery and rising demand, and can be fought back and defended. Recommended: 1) Changxie coking coal; 2) high-dividend thermal coal; 3) undervalued, with room for repair; 4) Growth & transformation.

Reviewing 2023, the coal price pressure test has passed, and the bottom has been verified

In 2023, China's coal production remained high, imported coal volume increased dramatically (+63% year over year), supply and demand were loosening, and power plant inventories were burdened. 2023Q2, the low season for electricity and coal, the peak season for non-electricity demand is clearly weak. In the three major industries that consume thermal coal and non-electricity, coal consumption in chemicals, building materials, and metallurgy all fell to a low point in the second quarter. After falling sharply in April, coal prices accelerated in May, and fell to a low of around 760 yuan/ton in June. In July, driven by electricity and coal consumption, coal prices rebounded at the bottom. However, in August, water improved, hydropower generation impacted demand for thermal power, and coal prices fell again, falling to a low of around 810 yuan/ton. Guotai Junan believes that in Q2-Q3 of 2023, when supply is high and demand is low, coal prices have completed a stress test, and coal prices are strongly supported by the Changxie maximum price of around 770 yuan/ton, or at the bottom of coal prices.

Jiangmei provides bottom-line support for coal prices

In recent years, China's raw coal production in Xinjiang has been growing rapidly, especially in 2021-2022. With the support of high coal prices, Xinjiang coal's long-distance export profits were good, and the export volume of Xinjiang coal increased significantly. Xinjiang is located in the northwest, far from the mainland, so transportation costs account for relatively high transportation costs of Xinjiang coal, which is a major factor limiting the export of Xinjiang coal. In 2023, the coal price center declined, and the growth rate of raw coal production in Xinjiang dropped drastically. In a single month, as coal prices declined in the second quarter, raw coal production in Xinjiang fell month-on-month, and raw coal production in Xinjiang declined year-on-year in June-October. In June, when coal prices were at their lowest point, coal production in Xinjiang was also at its lowest point since June 2022. It can be seen that coal production in Xinjiang is highly affected by market coal prices. When coal prices were low, there were no conditions for coal to leave the border. When coal prices were low in June 2023, some regions no longer had a price advantage, limiting the export volume of Xinjiang coal, production contracted, and domestic coal supply declined.

Higher coal costs at home and abroad provide bottom support for coal prices

1) In recent years, production costs in the coal industry have continued to rise. Of the 25 listed A-share coal mining companies in 2022, 20 units have increased their sales costs. Coal supply and pricing will be determined by marginal high-cost coal mines. Since 2023, the coal price center has declined, and some high-cost coal mines have experienced losses, and the industry's losses have continued to rise. As of October 2023, the number of coal loss-making companies nationwide was 1,956, accounting for 40%. If coal prices fall further in the future, the number of loss-making companies will increase, curbing supply release. 2) Overseas coal prices have also increased in recent years. It is estimated that the cost support of overseas coal to domestic coal prices is about 760 yuan/ton.

Risk warning: Economic growth falls short of expectations; imported coal enters on a large scale; supply exceeds expectations and is released.