The Zhitong Finance App learned that Huatai Securities released a research report saying that as the Spring Festival approaches, some coal mine holidays may drive supply tightening in production areas, but industrial production intensity will also gradually weaken, and power plant inventories are high and there is no need for strong storage. The bank expects the coal market to operate smoothly before the holiday season due to weak supply and demand. However, if inventories remain high and the traditional low demand season of 2Q24 is entered after the holiday season, coal prices may be suppressed by high inventories and decline.
Huatai Securities's views are as follows:
The peak season is not strong, and coal prices in the pre-holiday market may run smoothly
According to data from the National Bureau of Statistics, the average daily production of raw coal in December 2023 was 13.4 million tons, a slight decrease of 3% month-on-month due to weather and safety inspections, but coal production remained at a high level against the backdrop of unchanged insurance and supply trends. Although the cold tide in late December led to a rise in daily consumption during the peak season, downstream power plants had sufficient inventories, combined with a record high volume of imported coal, and coal prices experienced an anti-seasonal decline. As of January 15, the price of 5,500 calories of thermal coal in Beigang had dropped by about 40 yuan to 910 yuan/ton per ton from the December high.
As the Spring Festival approaches, some coal mine holidays may drive supply tightening in production areas, but industrial production intensity will also gradually weaken, and power plant inventories are high and there is a lack of demand for additional storage. We expect that the coal market may run smoothly before the holiday season due to weak supply and demand. However, if inventories remain high and the traditional low demand season of 2Q24 is entered after the holiday season, coal prices may be suppressed by high inventories and decline.
Coal production remained stable overall, and imported coal volume reached a record high
There were many coal mine safety accidents in December, and coal mine safety inspections are still strong, but against the backdrop of the winter insurance supply trend unchanged during the peak season, domestic coal production remained stable. Production in December was 410 million tons, which was basically the same from month to month. The total coal production for the whole of 2023 was 4.66 billion tons, an increase of 3% over the previous year. Meanwhile, in December 2023, coal imports hit a single-month high, reaching 47.3 million tons. The cumulative annual import volume reached 470 million tons, an increase of 180 million tons (+62%) over the previous year. The volume of imports has increased significantly, which is a good complement to domestic supply. Coal imports are expected to remain high in 2024. Recently, Shaanxi, Henan and other provinces have adopted meetings or documents to once again emphasize production safety, and as the Spring Festival holiday approaches, some coal mines will take holidays one after another, and supply in production areas may be tightened before the holiday season.
The peak season led to an increase in daily consumption, and downstream inventory went to storage slightly but remained high
The power generation of the whole society grew strongly in December. Under the month-on-month weakening of hydropower, thermal power played a pivotal role. Thermal power generation reached 610.9 billion kilowatt-hours, an increase of 20% over the previous month, driving the increase in demand for coal in power plants. The cold tide hit in late December, and the average temperature in major cities across the country was significantly lower than the average temperature for the same period in the past ten years. The daily consumption of thermal coal reached a peak in December and increased 14% year over year. Recently, as the weather has warmed up, the downstream storage slope has leveled off. At present, the inventories of power plants in 25 provinces and the inventories of the entire society remained high during the same period, up 8% and 12% from the same period last year, respectively. As the Spring Festival holiday approaches, electricity consumption may gradually weaken. Under high inventories, power plants lack the motivation to significantly replenish stocks, and the downstream demand side may be weak before the holiday season. If high inventories remain until the low season after the holiday season, coal prices may be further suppressed.
Coking coal is weakening due to downstream demand, and price elasticity is still there throughout the year
The steel industry was affected by increased losses. Production stoppages and maintenance increased in December, and crude steel production fell 11% month-on-month. Weak demand is transmitted upstream. Since January, coke has experienced two rounds of ups and downs. The cumulative reduction reached 200-220 yuan/ton, and the operating rate of coke companies is under pressure and the operating rate has declined. Although the supply of coking coal was severely disrupted by safety incidents in Shanxi, the main producer, and prices were strong in December, as downstream demand weakened, the price of low-sulphur prime focus in Shanxi fell 150 yuan/ton from the December high. Looking at the full year of 2024, the supply and demand for coking coal is expected to maintain a tight balance, compounded by continued stricter safety inspections at production sites. We expect the price difference between coking coal prices and thermal coal prices to widen.
Risk warning:
Supply-side disturbances exceeded expectations; demand-side recovery exceeded expectations.