On August 21st, the coal sector as a whole fell. In the A-share market, Pingdingshan Tianan Coal Mining fell more than 3% due to lower-than-expected mid-year performance, while Huaibei Mining Holdings, Shanxi Coal International Energy Group, and Shanxi Lanhua Sci-Tech Venture all fell more than 2%.

SouthGobi Coalfield fell 6.8% in the Hong Kong stock market, Yancoal Australia fell more than 5%, and Mongolian Mining, e-Commodities, and China Coal Energy followed the decline.

Industry insiders pointed out that in the short term, coal prices may continue to fluctuate due to factors such as supply and demand and policy adjustments; in the long term, with the adjustment of energy structure and the development of new energy, coal prices may gradually stabilize or decline.

Multiple leading stocks performed lower than expected.

Recently, several coal companies have successively disclosed their financial reports, and net profits have declined significantly.

On August 20th, the semi-annual report released by Pingdingshan Tianan Coal Mining showed that in the first half of the year, the company produced 14.21 million tons of raw coal, 6.59 million tons of clean coal, and achieved operating income of 16.254 billion yuan, a YoY increase of 1.78%; the net profit attributable to shareholders was 1.393 billion yuan, a YoY decrease of 37.66%.

The company's official stated that in the first half of this year, the domestic coal industry was affected by severe safety situations and insufficient downstream demand, resulting in a decrease in output and prices compared to the same period. During the reporting period, the domestic coal industry was generally weak, and the market price of thermal coal first suppressed and then rose with narrow fluctuations, the market price of coking coal fell rapidly in the first quarter and remained narrowly fluctuating in the second quarter, and the large fluctuations in coal prices affected the company's profitability.

However, the company is still bullish on the future development prospects of coking coal. It is expected that the price of coking coal will fluctuate upwards in the second half of the year with the improvement of domestic macroeconomic conditions. The company has also strengthened investor confidence through shareholding increases and share repurchases.

In addition, Shenhuo Coal & Power's operating income and net profit attributable to shareholders both saw double-digit decreases in the first half of the year. During the reporting period, the company achieved operating income of 18.221 billion yuan, a YoY decrease of 4.65%; it realized a net profit attributable to shareholders of 2.284 billion yuan, a YoY decrease of 16.62%.

The main reason for the decline in performance is that the company's main product, coal, saw sales volume and price decreases of 0.7273 million tons and 133.05 yuan/ton, respectively, resulting in weakened profitability of the company's coal products.

As for Yancoal Australia, its operating revenue in the first half of the year was 3.138 billion Australian dollars, a YoY decrease of 21%; and its net profit attributable to shareholders after deducting income taxes (before non-recurring items) was 0.42 billion Australian dollars, a YoY decrease of 57%.

The announcement stated that the decrease in revenue was mainly due to the 21% YoY decrease in coal sales revenue to 3.03 billion Australian dollars in the first half of 2024. Affected by the international energy market conditions, the coal prices fell back from the 2022 price level, but still remained stable. The price decline affected revenue, and this impact continued to exist on the income statement.

The entire coal industry is facing cost pressures caused by inflation, especially external cost inflation factors such as diesel, explosives, electricity, and accessories have now deeply affected the cost basis.

Will the downturn soon end? According to the China Coal Transportation and Distribution Association, in the first half of this year, China's high-quality coal production capacity was released in an orderly manner, coal production remained relatively high, and coal consumption increased slightly YoY, with the overall supply and demand of coal in the country remaining stable.

National Bureau of Statistics data shows that the output of industrial raw coal above designated size in June was 0.41 billion tons, a YoY increase of 3.6%, and the growth rate turned positive; the output of industrial raw coal above designated size in the first half of the year was 2.27 billion tons, a YoY decrease of 1.7%, and the decline rate narrowed by 2.4% compared to the previous quarter.

As for coal prices, since reaching the highest point this year of 887 yuan/ton on May 24th, port coal prices have basically remained on a downward trend, and have now fallen below 850 yuan/ton.

It is worth mentioning that, under the cost support and tightening of the supply at the production site, the market coal prices are still mainly declining slowly, and it is expected that coal prices will touch bottom in the future.

The focus in the future is on the reduction of inventories in power plants during the high energy consumption period in summer; if the effect of destocking is significant, there is a chance that the price of thermal coal will rebound significantly in the key period of non-electricity industry operation from late August to September and the coal storage peak in winter.

Looking to the future, Minsheng Securities pointed out that the current low point of thermal coal has passed, as the high growth rate of hydropower is no longer squeezing and the growth rate of thermal power has turned positive on a year-on-year basis. The tight supply of spot coal in ports may cause subsequent shortage of supplies and support coal prices. At the end of August, the marginal improvement of non-electricity demand may have a boosting effect. With the gradual the release of coal sector performance, due to the downward shift of coal prices, most companies' half-year performance has declined on a year-on-year basis. However, under the market cap management assessment of central state-owned enterprises, some companies have started to pay mid-year dividends. It is recommended to pay attention to the sector's dividend value.

In addition, the overall performance of the coal industry has declined to some extent on a year-on-year basis this year, mainly due to the decline in coal prices. From the perspective of industry growth logic, whether future performance can reverse the downward trend mainly depends on whether coal prices can stop falling and stabilize.

Currently, there is fierce competition in the energy industry, and there is also a certain degree of substitution between new and old energy. Especially in industries such as photovoltaics, competition is even more fierce, which has suppressed the overall demand of the energy industry. From the downstream perspective, fluctuations in steel prices and the real estate industry also bring new uncertainties to the development of the coal and power industry. Overall, whether energy prices can rise is closely related to the recovery of downstream industrial production demand.