The Zhitong Finance App learned that Open Source Securities released a research report saying that demand improved month-on-month, and the supply-side tight pattern continues, and coking coal prices are upward elastic. Currently, downstream demand has improved month-on-month. For coking coal prices, we need to pay attention to changes in fundamentals month-on-month rather than year-over-year, which is expected to support a steady rebound in coking coal prices. In addition, coking coal in Shanxi Province accounts for about 54.5% of coal production in the province, so a reduction of 78 million tons corresponds to a reduction of 42.51 million tons of coking coal. Assuming an estimated 45% elution rate, coking coal will decrease by 19.13 million tons, accounting for 3.9% of the country's coking coal production in 2023. This gap is difficult to make up for from other provinces. The bank said that the tight domestic coal supply situation or continuation in the future is expected to support coal prices.

Beneficial targets: As demand improves month-on-month and the supply pattern is tight, coal prices are expected to rebound upward and coking coal is more flexible. We recommend Pingmei Shares (601666.SH), Lu'an Huanneng (601699.SH), Huaibei Mining (600985.SH), and Shanxi Coking Coal (000983.SZ), which are flexible standards for coking coal. The cyclical product attributes are also expected to benefit from a rebound at the bottom of the price.

Open source securities views are as follows:

The spot price of coking coal is stabilizing, and coking coal futures and stocks have rebounded sharply

1) The spot price of coking coal is stabilizing: In terms of port prices, the spot price of coking coal is stabilizing. As of April 12, 2024, the main coking coal spot price in Jingtang Port has been priced at 1,890 yuan/ton for three consecutive days. 2) The price of coking coal futures rebounded sharply by 16%: As of April 12, 2024, the closing price of coking coal futures (active contracts) was 1,709 yuan/ton, up 238 yuan/ton from April 3, 2024, a sharp rebound of 16%. 3) The performance index of multiple coking coal standards: As the spot price of main coking coal stabilizes and futures prices have rebounded sharply, coking coal stocks have rebounded strongly. Leading targets such as Pingmei Co., Ltd., Huaibei Mining, Lu'an Huanneng, and Shanxi coking coal have clearly outperformed the general market index and the coal sector index, showing excess income from coking coal.

Shifting to the manufacturing industry to support domestic steel demand, and high export growth hedges weak domestic steel demand

1) The average daily production of iron and water continued to rise marginally: As of April 12, 2024, the profit rate of 247 steel mills nationwide was 38.11%, up 4.79 pct from week to week; for 4 consecutive weeks of month-on-month increase, profit improvements increased the production power of steel mills. As of April 12, 2024, the average daily iron and water output of domestic steel mills was 2.25 million tons, up 12,000 tons from week to week, an increase of 0.5%, for 2 consecutive weeks of month-on-month improvement.

2) The total inventory of steel mills fell sharply month-on-month: As of April 12, 2024, the total inventory of the five major steel mills was 5.81 million tons, -7.4% from week to week, declining for 4 consecutive weeks. (3) The manufacturing industry supports domestic steel demand: In the current situation where the real estate industry is still sluggish and the growth rate of traditional infrastructure is declining, the rapid development of automobile manufacturing, green energy and other industries has led to an increase in steel consumption. As of April 12, 2024, the production of medium and thick plates in major steel mills was 1.56 million tons, +6% compared to the same period in 2023, +0.5% week to month; the production of rebar and wire mainly used in real estate declined markedly. As of April 12, 2024, the production of rebar and wire from major steel mills was 210/830,000 tons, compared to -30.4%. 33.7%, -1.3%/-2.6% week over week.

4) High growth in steel exports hedged weak domestic demand: In March 2024, China's steel exports both achieved significant year-on-month growth, with exports of 9.888 million tons of steel in March, +37.9% month-on-month, +25.3% year-on-year, with cumulative exports of 25.08 million tons of steel in January-March, +30.7% year-on-year; from a structural perspective, China's steel exports are mainly exported to South Korea, ASEAN, the Middle East and North Africa. According to the 2024-2025 steel demand forecast report released by the World Steel Association on April 9, the world steel demand will be compared. +1.7%/+1.2%. Among them, India's steel demand will continue to grow 8% from 2024-2025, and steel demand in other emerging economies such as the Middle East, North Africa, and ASEAN is expected to accelerate in 2024-2025. The high increase in China's steel exports is expected to hedge against weak domestic demand in the future.

The year-on-year decline in real estate investment narrowed, and investment in industrial production and manufacturing is expected to support downstream demand

(1) The year-on-year decline in real estate investment narrowed: in January-February 2024, China's real estate development investment was -9.0% year over year, and the decline narrowed 0.6 pct month on month; infrastructure investment was +6.3% year over year, and growth rate increased by 0.4 pct month on month; manufacturing investment was +9.4% year over year, and growth rate increased 2.9 pct month-on-month. (2) Industrial production and manufacturing investment are expected to support downstream demand: From January to February 2024, the total profit of Chinese industrial enterprises was +10.2%, ending the previous year and a half of continuous negative year-on-year growth; in March 2024, China's PMI recorded 50.8%, returning above the boom and bust line. Investment in industrial production and manufacturing is expected to support downstream demand for coking coal.

Demand improved month-on-month, and the supply-side tight pattern continued, and coking coal prices were upward elastic

1) Month-on-month improvement in downstream demand: Referring to the average daily iron and water production situation of steel mills in 2024, downstream demand for coking coal may have declined year-on-year, but currently downstream demand has improved month-on-month. For coking coal prices, we need to pay attention to changes in fundamentals month-on-month rather than year-over-year. A marginal recovery in downstream demand is expected to support a steady rebound in coking coal prices.

2) The tight supply pattern may continue: the operating rate of coal mines in major production areas after the Spring Festival is lower than the same period in 2023. As of April 7, 2024, the operating rate of 442 coal mines in Jinshan, Shaanxi was 81%, -0.2 pct week on week. It has been declining for 4 consecutive weeks. Among them, the operating rate in Shanxi fell from a high of 70.2% to 67.1%, and a year-on-year decline of 5.7 pcts. In 2024, Shanxi's planned coal output is about 1.3 billion tons, a decrease of about 78 million tons compared to 2023, accounting for 1.7% of the country's total coal production in 2023. Coking coal in Shanxi Province accounts for about 54.5% of coal production in the province, so a reduction of 78 million tons corresponds to a reduction of 42.51 million tons of coking coal. Assuming an estimated 45% elution rate, coking refined coal will decrease by 19.13 million tons, accounting for 3.9% of the country's coking coal production in 2023. This gap is difficult to make up for from other provinces. The tight domestic coal supply situation or continuation in the future is expected to support coal prices.

Risk warning: coal prices fell beyond expectations, economic recovery fell short of expectations, coal imports exceeded expectations, etc.