The Zhitong Finance App learned that Debon Securities released a research report stating that the domestic security situation is grim. Policy ideas are shifting to both guaranteed supply and safe production, and coal supply flexibility may weaken in March; on the import side, domestic and foreign coal prices were inverted at the end of March, and the import window is expected to close, and subsequent import increases may be limited. With the Politburo meeting held on July 24, 2023, and the two offices issued “Opinions on Further Strengthening Work Safety in Mines” on September 6, the fundamentals and expectations of the coal industry have changed significantly; in 2024, the State Assets Administration Commission will fully implement market value management for state-owned enterprises, and the Securities Regulatory Commission will promote high-quality dividends from listed companies, further highlighting the investment value of coal stocks. Maintain the sector's “better than market” rating. Three directions are recommended: 1) high-quality dividends; 2) bifocal elasticity; 3) long-term increment.

The main views of Debon Securities are as follows:

Supply continued to decline in March, and imports remained basically flat year over year

1) Domestic production: In March, the country's raw coal output was 399 million tons, down 4.2% year on year; the average daily output was 13.31 million tons, down 1.10% year on year. In January-March, the country's cumulative raw coal production was 1,106 billion tons, a year-on-year decrease of 4.1%. 2) In terms of imports: In March, domestic coal imports were 41.38 million tons, up 0.5% year on year and 22.6% month on month; cumulative imports from January to March were 116 million tons, up 13.9% year on year. 3) Total supply: The total supply in March was 441 million tons, a year-on-year decrease of 3.86%.

Demand has yet to be launched, so keep an eye on the pace of economic recovery

1) Hydropower output increased, and thermal power remained flat year on year. In March, hydropower generation was 71.2 billion kilowatt-hours, up 3.1% year on year; thermal power generation was 5201 billion kilowatt-hours, up 0.5% year on year. The cumulative year-on-year increase in January-March was 6.6%, and the growth rate slowed by 3.1 PCT.

2) The area of new construction of cement, pig iron, and housing decreased year-on-year. Raw materials: In March, domestic cement production was 154 million tons, down 22% year on year; 247 domestic steel mills produced 2,216,900 tons of iron and water per day, down 1.01% month on month and 7.00% year on year. In January-March, domestic cement production fell 11.8% year on year, and domestic pig iron production fell 2.9% year on year. Real estate: In March, the cumulative sales area of domestic commercial housing decreased by 19.4% year on year; the cumulative area of new domestic housing construction decreased by 27.8% year on year.

Looking ahead to the future market, steady economic recovery & large-scale equipment updates are expected to support coal demand: 1) The 2024 government work report and the two national conferences mentioned a series of positive policies, including local special bonds, ultra-long-term special treasury bonds, equipment updates, etc.; 2) With the deepening of high-quality development, the demand for equipment updates will continue to expand. The initial estimate is that the market size is over 5 trillion dollars, and long-term demand is guaranteed; 3) In the short term, key projects are entering the peak pouring period, some new projects are gradually entering the preparation period, and construction site funding rates are gradually improving The favorable factors are compounded, and demand recovery is expected to improve.

The long-term investment value of the coal industry is clear

1) The industry faces insufficient supply and demand in the medium to long term: there is a long way to replace new energy sources, the absolute value of coal demand is growing year by year, and the supply growth rate is expected to decline this year. It is expected that there will still be a supply conflict in 2025; 2) Corporate financial health: Compared with the high and downward trend in the past cycle, coal companies are reducing leverage, and it is expected that there will be no balance sheet risk in the future; 3) Although current coal prices have declined compared to 2022, the coal sector still has high-quality long-term dividend attributes, and most coal companies are state-owned enterprises that manage the market value of state-owned enterprises. Driven by it, there will be more momentum to reduce costs and increase Effectiveness promotes a recovery in corporate value.

Risk warning: Domestic economic recovery falls short of expectations; recovery in overseas demand falls short of expectations; falling crude oil prices are dragging down chemical product prices.