Coal production safety supervision tends to be normalized, and the supply of coal-producing areas is increasing. Meanwhile, Shanxi has resumed production recently, with the supply in October increasing year-on-year but slightly decreasing month-on-month.
According to the Securities Times app, Shanxi Securities released research reports stating that from January to October 2024, the cumulative output of raw coal reached 3.892 billion tons, a year-on-year increase of 1.20%, with a slower growth rate compared to the same period in 2023. In October, the monthly output of raw coal reached 0.412 billion tons, a 4.60% increase year-on-year, with a slight increase in supply but a slight decrease month-on-month. On the supply side, coal production safety supervision tends to be normalized, leading to an increase in coal supply in various regions, while Shanxi's recent continuous production resumption resulted in a year-on-year supply increase in October but a slight decrease month-on-month. On the demand side, the growth rate of thermal power generation decreased in October, and with rising temperatures, winter coal demand is yet to be fully realized, keeping domestic port thermal coal prices weak but stable. Looking ahead, as supply returns to normal and demand is still expected, coupled with increased uncertainty in foreign trade coal, it is anticipated that domestic coal prices will remain at relatively high levels in the winter.
Key viewpoints of Shanxi Securities are as follows:
Supply: From January to October, the supply of raw coal slightly increased compared to the same period in 2023. From January to October 2024, the cumulative output of raw coal reached 3.892 billion tons, a year-on-year increase of 1.20%, with a slower growth rate compared to the same period in 2023. In October, the monthly output of raw coal reached 0.412 billion tons, a 4.60% increase year-on-year, with a slight increase in supply but a slight decrease month-on-month.
Demand: From January to October, manufacturing investment continued to grow rapidly, while overall downstream demand remained under pressure. The growth rate of fixed asset investment remained stable, with significant growth in manufacturing investment. From January to October 2024, fixed asset investment increased by 3.4% year-on-year (an increase of 0.5 percentage points compared to the same period the previous year). Specifically, manufacturing investment increased by 9.30% (an increase of 3.1 percentage points compared to the same period last year), infrastructure investment increased by 4.3% (a decrease of 1.6 percentage points compared to the same period last year), and real estate investment decreased by 10.3% (an increase of 1.0 percentage points compared to the same period last year). The cumulative growth rates of thermal power, coking coal, pig iron, and cement from January to October 2024 achieved -1.9%, -1.1%, -4.0%, and -10.3% respectively, showing significant decreases compared to the same period the previous year.
Imports: From January to October, the import volume continued to grow, with a higher growth rate in October compared to the same period last year. In the period from January to October 2024, the cumulative import volume reached 435.37 million tons, an increase of 13.50% year-on-year. In October, the monthly import volume reached 46.25 million tons, a 28.51% increase year-on-year, showing an increase in growth rate compared to the same period last year.
Price and Profit: Thermal coal prices remained relatively stable, while coking coal prices rose slightly month-on-month. In October, the average price of Shanxi mixed 5500 kcal/kg thermal coal was 865 yuan/ton, a 14.68% decrease year-on-year but a 0.64% increase month-on-month. The average price of the main coking coal at Jingtang port was 1889 yuan/ton in October, a 23.36% decrease year-on-year but a 6.09% increase month-on-month. The average price of grade II metallurgical coke at Tianjin port was 1766 yuan/ton in October, a 19.74% decrease year-on-year but a 13.92% increase month-on-month.
Investment advice:
On the supply side, coal producing areas' safety supervision tends to normalize, with overlapping increments in coal supply, while Shanxi's recent resumption of production continues. In October, the supply increased year-on-year but decreased slightly month-on-month. On the demand side, the growth rate of thermal power in October has slowed down, and with the rise in temperature, the winter coal demand is still waiting to be released. The domestic port thermal coal prices remain weak but stable. As for coking coal and coke, the demand is weak, with limited incremental demand for non-electric coal consumption. The downstream steel plants have relatively high operating rates, and rebar steel inventories are relatively low. Coupled with bullish policy expectations, the coking coal prices are supported month-on-month.
Overall, due to strict normalization of safety supervision and with room for stable economic policies, there is still marginal improvement expectation for economic stability policies in the later period related to real estate, infrastructure, and other sectors. Meanwhile, with the winter lowering of thermal coal for electricity generation, there is hope for marginal improvement. The rigidity of coal demand is relatively strong, making it difficult for the coal supply-demand relationship to further loosen in 2024. There is unlikely to be significant fluctuations in coal prices in the fourth quarter.
Recommendations for investment symbols
Shanxi Securities indicates that with the continuous implementation of buybacks, increased shareholdings, and the landing of monetary tools such as SFISF, there is the potential for further deepening the value of coal dividends in carry trade transactions. It is recommended to focus on high-yield and stable dividend-paying varieties.
In terms of high-yield dividend-paying varieties, there is a relatively bullish view on Guanghui Energy (600256.SH), Pingdingshan Tianan Coal Mining (601666.SH), Yankuang Energy (600188.SH), Anhui Hengyuan Coal Industry and Electricity Power (600971.SH), Beijing Haohua Energy Resource (600378.SH), Huaibei Mining Holdings (600985.SH), Jinneng Holding Shanxi Coal Industry (601001.SH).
Regarding stable dividend-paying varieties, there is a relatively bullish view on China Shenhua Energy (601088.SH), Shaanxi Coal Industry (601225.SH), and China Coal Energy (601898.SH).
Shanxi coal companies are frequently expanding storage, and calculated based on the transaction resource price per ton, the market value level is much higher than the current market value. The previous bearishness due to reduced production has been exhausted, and related companies' valuations have a significant recovery potential. It is recommended to focus on Shanxi Lu’an Environmental Energy Development Co., Ltd (600348.SH), Shanxi Coking Coal Energy Group (000983.SZ), and shanxi (601699.SH).
Risk Warning: Excessive release of supply; insufficient improvement in demand side; coal shortage in the EU is less than expected, large amount of imported coal flooding into the domestic market; strong price controls; failed coal enterprise transformation, etc.