The Zhitong Finance App learned that Guohai Securities released a research report saying that the price of coking coal is gaining momentum in the short term. The main reasons include: low overall supply flexibility; iron and water production is expected to improve further; terminal inventory removal is coming to an end; the steel coking coal market has already been implemented. The current coking coal stock market is still worth paying attention to. In the long run, the supply and demand pattern of the coking coal industry is expected to be tight, and domestic steel production costs have a strong advantage. Looking overseas, Australia's long-term growth has been weak on the supply side, India is clearly driving the demand side, and there are also tight expectations for the overseas coking coal supply and demand pattern. Maintain the coking coal industry's “recommended” rating.

Guohai Securities's views are as follows:

Coking coal is mainly used in steel smelting and is an important resource.

Coal is divided into lignite, bituminous coal, and anthracite according to the degree of coking coal in order of degree of coking coal. Coking coal is part of the varieties of bitumen, mainly poor and thin coal, main coking coal, fertilizer coal, gas coal, etc., which are mainly used in steel smelting. Coking coal is an important resource in China, and China is also the world's largest producer and consumer of coking coal. In 2023, China will produce about 490.34 million tons of coking coal, consume about 591.46 million tons, and import about 101.93 million tons.

Domestic coking coal resources are unevenly distributed, and supply flexibility is clearly insufficient.

According to data from “Distribution Characteristics of Scarce Coking Coal Resources in China” (Deng Xiaoli, 2018), China's identified coking coal resource reserves reached 276.5 billion tons. By region, domestic coking coal is mainly concentrated in North China and East China, of which Shanxi accounts for more than half of the resource reserves. There is limited room for growth in the effective supply of domestic coking coal. Since 2020, domestic coking refined coal production has remained at 48-490 million tons. The supply is relatively stable and growth elasticity is clearly insufficient. Since 2024, with the implementation of the “Three Super” reforms in Shanxi Province and the tightening of the supply side, the country's effective supply of coking coal from January to February 2024 was 71.85 million tons, -8% compared with the same period last year.

China's coking coal is highly dependent on the outside world. The main increase comes from Mongolia and Russia.

In 2023, China imported 102 million tons of coking coal, an increase of 59.5% over the previous year, and the degree of external dependence increased to 17.2%. By country, imports mainly come from Mongolia, Russia, Australia, Canada, and the United States. The increase in China's coking coal imports in 2023 mainly came from Mongolia and Russia. Among them, 53.93 million tons of coking coal were imported from Mongolia, up 110.6% year on year, accounting for 52.9% of total imports; imported 26.7 million tons of coking coal from Russia, up 23.7% year on year, accounting for 25.6% of total imports.

The current bottom of coking coal prices has obvious characteristics.

(1) The main coking coal in Jingtang Port has fallen close to 840 yuan/ton since the beginning of the year (as of April 8), with the biggest drop in March. This is also partly due to the fact that the coal coking and steel industry chain is trading in the second quarter, and market sentiment has improved; (2) supply in the main production areas has recovered, Mongolian coal imports have remained high, and supply-side elasticity is low; (3) the volume of mainstream construction steel traders continued to rise, close to the same period last year, and iron and water production continued to rise steadily; (4) downstream inventories continued to rise., “Invisible” supply pressure has been released, and prices have rebounded steadily space.

Looking ahead to 2024, it is more likely that there will be a small gap between domestic coking coal supply and demand.

Considering that domestic safety supervision continues, production continues to decline (assuming -3%), imports of Mongolian coal continue to rise, total imports are expected to grow (assuming +10.0%), and supply-side growth is limited; on the demand side, the terminal manufacturing industry and steel exports are actively boosted by strong growth and infrastructure support, the drag effect on real estate has been reduced, and steel demand is still quite resilient. The bank assumes the demand for coking coal. The year-on-year growth rate of demand in 2024 is expected to be distributed in the range of -3% to +3%. From this, it is calculated that the supply and demand gap (supply-demand) is distributed between 15.3 million tons and 2019 million tons. If demand growth is predicted to be 0%, the domestic coking coal supply and demand gap is about 2.45 million tons.

Looking at the global coking coal supply and demand pattern in the long run, there are tight expectations.

According to REQ forecasts, in the long run, Australia's coking coal exports showed a trend of first increase and then decline. The overall increase was limited, with an average growth rate of +2% in 2023-2029, with an average annual increase of about 3.8 million tons, and there are still uncertainties about Australia's supply release: (1) capital expenditure in coal mines is affected by the environment and social permits, and capital shortages may continue; (2) labor shortages are likely to continue to worsen in the next five years. On the demand side, India's driving effect is obvious. According to the World Steel Association, India's steel demand will maintain an 8.2% growth rate in 2024/2025. However, India's own coking coal washing rate is low, and it is highly dependent on coking coal imports (more than 85%). According to the bank's report “Depth of the Coal Mining Industry: India Is Becoming a Weather Vane for Overseas Coal Prices”, India's coking coal imports are expected to be 63 million tons in fiscal year 2023. Assuming an annual increase of 8.2% in the future, by fiscal year 2029, India will have added more than 38 million tons of coking coal demand, with an average annual increase of about 6.3 million tons, higher than the increase in Australian exports. The characteristics may be relative in the long-term dimension Too tight.

Investment advice and industry ratings: The bank believes that coking coal prices are gaining momentum in the short term. The main reasons include: low overall supply flexibility; iron water production is expected to improve further; terminal inventory removal is nearing its end; the steel coking coal market has already been implemented. The current coking coal stock market is still worth paying attention to. In the long run, the supply and demand pattern of the coking coal industry is tight. Domestic steel production costs have a strong advantage. Pig iron production is expected to remain high, while domestic coal mining procedures are complicated, construction and production cycles are long, and the cost of building new mines has risen sharply. Mainstream coal companies are still very weak. The industry's production capacity has basically reached a high load. The space for nuclear growth has been drastically reduced. Combined with the continuous withdrawal of resource-depleted mines in the east and other regions, supply-side constraints in the coking coal industry are more rigid. Looking overseas, Australia's long-term growth has been weak on the supply side, India is clearly driving the demand side, and there are also tight expectations for the overseas coking coal supply and demand pattern. Maintain the coking coal industry's “recommended” rating.

The metallurgical coal proposal focuses on: Pingmei (601666.SH) (leading coking coal in the central and southern regions with high dividends, issuing convertible bonds), Huaibei Mining (600985.SH) (undervalued regional coking coal leader, coal coking, etc., there is still room for growth), Shanxi coking coal (000983.SZ) (leading coking coal industry leader, target of state-owned enterprise reform in Shanxi), and Lu'an Huanneng (601699.SH) (high share of coal in the market, high performance flexibility).

Risk warning: 1) risk of slowing economic growth; 2) risk of uncertainty in administrative intervention; 3) production safety risk; 4) supply and demand pattern estimates in the coking coal industry are based on certain assumptions, and conclusions may be limited and biased; 5) there is a risk that public data used in the research report is lagging behind or not being updated in a timely manner; 6) Focus on the company's performance falling short of expectations.