The Zhitong Finance App learned that the current fundamentals of thermal coal demand have maintained steady operation, supported by demand for electricity and coal. Non-electricity demand, especially chemical demand, continues to recover. The coal price trend has begun to diverge, and prices in production areas have begun to rise tentatively, leading to a slight rebound in port prices. Also, it is worth noting that the water storage level in the Three Gorges has dropped to the same period last year, and there is still uncertainty about hydropower output this year. On the supply side, coal production in Jinshan, Shaanxi, and Mongolia is expected to shrink this year. Stable production and safety will be the main production tone, while the year-on-year decline in average daily raw coal production in March is in line with the judgment that the growth rate of supply will be lower than the growth rate of demand. We are still optimistic about the room for a rebound in coal prices this year.
The main views of Great Wall Securities are as follows:
Monthly data on supply and demand prices: supply began to shrink, demand for thermal power increased, coal prices fell month-on-month
Supply side: Production in major production areas declined, and imports remained at 40 million tons. In terms of production, in March, the country's raw coal production was 399 million tons (-4.3% YoY), and in January-March, the country's cumulative raw coal output was 1,106 million tons (-4.1% YoY). Production in major production areas in Shanxi has declined markedly, and the share of Xinjiang coal continues to rise. In March 2024, China's coal imports were 41.37 million tons (+0.5% year over year), up 22.6% month on month. In January-March, China's cumulative coal imports amounted to 116 million tons (+13.8% year-on-year).
Demand side: Demand for electricity and coal increased year-on-year, and chemical demand performed well. In March 2024, the country's thermal power generation capacity was 5201 billion kilowatt-hours (+1.1% year over year). In January-March, the country's thermal power generation capacity was 1.60 trillion kilowatt-hours (+110 billion kilowatt-hours compared to the previous year). In March, the country's methanol production process was 6.34 million tons (+12.8% year over year). In January-March, the country's cumulative methanol production process was 16.53 million tons (+14.0% year over year).
Price side: International energy strengthened month-on-month, and the difference between market coal prices and long-term agreement prices narrowed. In March 2024, the spot price of Brent crude oil was 0.306 US dollars/5,500 kcal, up 2.1% month-on-month and 8.9% year-on-year. The sewage price of 5,500 kcal thermal coal in Qinhuangdao Port was 0.124 US dollars/5,500 kcal, down 4.5% month-on-month and 23.5% year-on-year. The price of 5,500 kcal thermal coal in Qinhuangdao Port was 708 yuan/ton, flat from month to month. The difference between market price and Changxie price was 169 yuan/ton, down 42 yuan/ton from February.
Coal market conditions in March: the recovery in non-electricity demand after the holiday fell short of expectations, the main reason for the decline in coal prices
Production area: Coal mines in production areas resumed work and resumed production according to the plan after the holiday season, and supply was relatively sufficient. Although the Shanxi region carried out “three super” special coal mine remediation, coal mine inventories in the production area rose in the short term due to poor downstream demand, and coal prices continued to fall as a result. On the port side: Temperatures continued to rise after the holiday season, the daily consumption of power plants dropped markedly, power plant stocks were sufficient, off-season warehouses were more cautious, and the acceptance of high-priced coal was not strong. The port is still dominated by Changxie shipping, and market sentiment is lukewarm. As coal prices continue to fall, the price of imported coal with the same calorific value in Hong Kong is generally higher than the price in domestic production areas.
Secondary coal market performance in March: the coal industry performed better than the market
As of March 31, the monthly revenue of the Shenwan Coal Tier 1 Industry Index was -3.72%, outperforming the Shanghai and Shenzhen 300 Index by 4.33pct. The top three stocks were Xinji Energy (23.20%), Jingong Coal (15.71%), and Huaihe Energy (6.94%).
Investment advice:
In the current context where the policy side emphasizes production safety, Great Wall Securities believes that there are contraction expectations on the coal supply side, that the sector has high cash and high dividend attributes, and that profitability remains steady. Recommended attention:
1) China Shenhua (601088.SH), China Coal Energy (601989.SH), Shaanxi Coal Energy (601225.SH), and Yankuang Energy () are recommended for leading enterprises in the central state-owned enterprise industry and targets with strong performance resilience. 600188.SH
2) As downstream demand gradually recovers, we are optimistic about the future room for coking coal prices. We recommend high-quality coking coal resources: Shanxi Coking Coal (000983.SZ), Huaibei Mining (600985.SH), Pingmei Co., Ltd. (601666.SH), and Lu'an Huanneng (601699.SH).
3) Upstream and downstream integrated management, with strong performance stability to withstand cycle fluctuations. We recommend Xinji Energy (601918.SH) and Hengyuan Coal and Electricity (600971.SH). 4) For export beneficiaries of Xinjiang coal, sales volume is expected to continue to grow in the future. Guanghui Energy (600256.SH) is recommended.
Risk warning: macroeconomic recovery falls short of expectations, major production safety accidents in key coal mines, a systematic drop in international energy prices, and an international geopolitical crisis.