The Zhitong Finance App learned that Great Wall Securities released a research report saying that in June, the country's raw coal production was 0.405 billion tons (+3.92% year over year), and from January to June, the country's cumulative raw coal production was 2.27 billion tons (-1.52% year over year). Production in major production areas in Shanxi has declined markedly, and the share of Xinjiang coal continues to rise. On the price side, the price of 5,500 kcal thermal coal in Qinhuangdao Port was 700 yuan/ton, up 3 yuan/ton from month to month. The difference between the market price and the Changxie price was 168 yuan/ton, an increase of 5 yuan/ton over May. Looking at market conditions, due to the rainy weather, the Southern Thermal Power Plant's daily consumption recovery is slow, and the supply of imported coal from Changxiehe is sufficient, making the power plant's own inventory level good, and overall demand for coal in the market is weak. After being affected by this, the port market's sentiment also gradually weakened, and the market “buy up or down” sentiment is strong.

The main views of Great Wall Securities are as follows:

Monthly data on supply and demand prices: production has begun to recover, demand for thermal power has stabilized, and coal prices have risen month-on-month

Supply side: Production in major production areas increased month-on-month, and imports are still high. In terms of production, in June, the country's raw coal production was 0.405 billion tons (+3.92% YoY), and in January-June, the country's cumulative raw coal production was 2.27 billion tons (-1.52% YoY). Production in major production areas in Shanxi has declined markedly, and the share of Xinjiang coal continues to rise. In June 2024, China's coal imports were 44.6 million tons (+11.9% YoY). From January to June, China's cumulative coal imports were 0.25 billion tons (+12.4% year over year).

Demand side: Demand for electricity and coal declined year on year, and demand for non-electricity slowly recovered. In June 2024, the country's thermal power generation was 487 billion kilowatt-hours (-6.9% YoY). From January to June, the country's thermal power generation was 3 trillion kilowatt-hours (+65.2 billion kilowatt-hours compared to the previous year). In June, the country's methanol production process was 4.89 million tons (-12% year over year). From January to June, the country's cumulative methanol production was 32.3 million tons (+12.4% year over year).

Price side: International energy price trends diverge, market coal prices and long-term agreement price differences widen. In June 2024, the spot price of Brent crude oil was $0.295/5,500 kcal, up 0.7% month-on-month and 10.7% year-on-year. The sewage price of 5,500 kcal thermal coal in Qinhuangdao Port was 0.122 US dollars/5,500 kcal, up 0.7% month-on-month and 9.8% year-on-year. The price of 5,500 kcal thermal coal in Qinhuangdao Port was 700 yuan/ton, up 3 yuan/ton from month to month. The difference between market price and Changxie price was 168 yuan/ton, an increase of 5 yuan/ton over May.

Coal market conditions in June: Market expectations are rushing ahead of schedule, and the fulfillment of high temperature demand is suspended

Production area: Demand for chemicals was relatively stable during the month, mainly in need of procurement. Driven by the port market, trade users' sentiment was weak, and their enthusiasm for shipping gradually declined. Coal mines also began to lower coal mine prices after poor sales. In addition, purchasing prices outside the group also declined, and market sentiment in production areas was also mainly weak. However, due to poor overall production inventories, there was little pressure to reduce prices.

On the port side: Affected by the rainy weather, the recovery of daily consumption at the Southern Thermal Power Plant was slow, and the supply of imported coal from Changxiehe was sufficient, so the power plant's own inventory level was good, and the overall demand for coal in the market was weak. After being affected by this, the market's “buy up or down” sentiment was strong, and Beigang's inventory gradually accumulated, leading to problems such as spontaneous combustion of coal and inversion of shipments. Traders' price appreciation was also divided, and shipments at reduced prices increased.

Secondary coal market performance in June: the performance of the coal industry is weaker than the general market

As of June 30, the monthly revenue of the Shenwan Coal Tier 1 Industry Index was -5.54%, outperforming the Shanghai and Shenzhen 300 Index by 2.24pct. The top three stocks were Huaihe Energy (8.49%), China Shenhua (4.82%), and Shaanxi Coal (4.12%).

Investment advice

Great Wall Securities believes that the current fundamentals of thermal coal demand have maintained steady operation, backed up by demand for electricity and coal, and that non-electricity demand, especially chemical demand, continues to recover. The coal price mapping has been completed and has entered a rebound channel. Meanwhile, 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. The growth rate of coal supply this year will be lower than the growth rate of demand, and there is still room for a rebound in coal prices this year. In the current context where the policy side emphasizes safe production, there are contraction expectations on the coal supply side. The sector has high cash and high dividend attributes, and profitability remains steady.

Aspect of the target

1) China Shenhua (601088.SH), China Coal Energy (601898.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.