The Zhitong Finance App learned that Open Source Securities released a research report saying that in the current economic and interest rate environment, capital pays more attention to the certainty of investment returns. High dividends and sustainability of coal are in line with capital allocation preferences, and the high dividend investment logic of coal stocks is still the main line. In addition to this, the cyclical flexible investment logic of coal stocks will also be repeated. Currently, the prices of thermal coal and coking coal are in the bottom range after the correction. Recently, the average daily production of iron and water has rebounded marginally and crude oil prices have remained at a high level, with favorable coal demand and price performance. The prices of the two types of coal are upward elastic.
The main views of Open Source Securities are as follows:
The average daily production of molten iron has reached an inflection point, and coal demand and prices are expected to boost
(1) Improved profitability of steel mills has led to a marginal recovery in the average daily production of iron and water, and demand for coking coal is expected to be boosted: Recently, steel mill profits have improved. As of April 5, 2024, the profit margin of 247 steel mills nationwide was 33.32%, up 4.74 pcts from week to week. With steel mill profits improving, the momentum to resume production has increased, and the average daily production of molten iron showed a marginal recovery after experiencing a continuous decline since February 2024. As of April 5, 2024, the blast furnace operating rate of 247 domestic steel mills had recovered to 77.83%, up 1.25 pcts from week to month, and the blast furnace operating rate of domestic steel mills hit a new high since 2024; the average daily iron and water output of 247 domestic steel mills was 2,236,400 tons, up 24,000 tons from week to month, an increase of 1.08%. As the main downstream demand for coking coal, the average daily production of molten iron has reached an inflection point, which may further boost demand for coking coal.
(2) The increase in the average daily production of molten iron also benefits downstream demand for metallurgical thermal coal: The marginal recovery in the average daily production of molten iron can not only boost demand for coking coal, but also drive an increase in demand for non-electric coal. This is due to the need to consume a certain amount of thermal coal for heating during the metallurgical process. This is also the demand for non-electric coal that is easily overlooked by the market. In 2023, China's thermal coal consumption was 4.04 billion tons, of which the electricity/metallurgy/chemical/building materials/heating industry accounted for 63.6%/4.4%/6.2%/7.2%/8.3% respectively. In 2023, the thermal coal consumption for metallurgy was about 180 million tons, which is not much different compared with the thermal coal consumption of 290 million tons in the building materials industry and 250 million tons in the chemical industry. The marginal recovery in average daily iron and water production is expected to increase thermal coal demand at the same time.
Open Source Securities said that in the future, as local real estate support policies continue to be introduced, the decline in new real estate construction is expected to narrow. At the same time, as trillions of treasury bonds support infrastructure demand and large-scale equipment upgrades and consumer goods trade-in stimulate the growth of steel demand, domestic steel demand is expected to be steady and progressive, thus further promoting the cessation and stabilization of all coal demand and prices.
Crude oil prices have risen sharply, and coal & oil prices linked or catalyzed demand for coal chemicals
(1) There is a linkage mechanism between coal and oil prices: coal chemicals and oil head chemicals have alternative and route cost advantages. Changes in demand for crude oil and coal in related industries and products will cause coal prices to change with changes in crude oil prices. Since April 2020, the correlation coefficient between Brent crude oil futures settlement prices and the closing price of Q5500 coal produced in western Q5500 in Qinhuangdao Port has reached 0.75. When oil head production is more expensive than coal head production process, more products will be converted to coal head process production.
Taking olefin production as an example, the current oil price of 90 US dollars/barrel is equivalent to the cost of olefins produced at the port coal price of 1,130 yuan/ton, that is, 7,867 yuan/ton. When the price of crude oil is higher than 90 US dollars/barrel, if the port coal price runs below 1,130 yuan/ton, the coalhead process has a cost advantage, and will also spawn more coal chemical demand at that time; in addition, Open Source Securities has sorted out the comparison between coal & oil prices and other key points of the cost of producing the same coal olefins, that is, 80 US dollars/barrel oil corresponds to 971 yuan/ton port price, 70 US dollars/Barrels of oil correspond to 806 yuan/ton port The price of coal.
(2) The current crude oil price has risen sharply to 90 US dollars/barrel, and the production cost advantage of coal head chemicals will clearly spawn more demand for coal chemicals: due to factors such as improving oil supply and demand relationships and tight geographical conditions, international oil prices have basically remained high at a high level of 80 US dollars/barrel in the past two months. As of April 5, 2024, the Brent crude oil futures settlement price has risen to 91.17 US dollars/barrel. Corresponding to this, the price of coal in Qingang has dropped from 911 yuan/ton on February 7 to 806 yuan/ton on April 7. Yutou route.
From September to October 2023, oil prices remained above 90 US dollars/barrel. Under the coal & oil price linkage mechanism, coal prices rose more than expected in the off-season. Coal prices in Qingang rose more than 1,030 yuan/ton from 850 yuan/ton on September 1, 2023. At that time, the operating rate of methanol in coal chemicals also continued to rise, and the increase in demand for coal chemicals also became an important factor driving up coal prices.
Beneficial targets:
The first is the flexible standard for thermal coal. Yankuang Energy (600188.SH), Jinkong Coal (601001.SH), and Guanghui Energy (600256.SH) are recommended. Spot coal accounts for a large share and is expected to benefit from a rebound at the bottom of prices.
Second, thermal coal is a stable income target. China Shenhua (01088) is recommended. The annual long-term association accounts for a large share, and the dividend ratio is stable and continuous.
Third, thermal coal and electricity are integrated and high-dividend option targets. Xinji Energy (601918.SH) is recommended. In the future, desensitization to coal prices can achieve higher performance stability, and it is expected that high dividends will be obtained after capital expenditure is over.
Fourth, the flexible standard for coking coal is recommended. Pingmei Co., Ltd. (601666.SH), Lu'an Huanneng (601699.SH), Huaibei Mining (600985.SH), and Shanxi Coking Coal (000983.SZ) are recommended. They also benefit from a rebound at the bottom of the price.
Risk warning: coal prices fell beyond expectations, economic recovery fell short of expectations, accelerated replacement of new energy sources, etc.