Coal Price Expected to Stabilize, Sector May Rise Further

CITIC Securities published a research report stating that recently, the price of thermal coal has experienced slight fluctuations, and the "double coke" prices have continued to rise with the recovery of profits in the black industry chain. The sector has seen significant volatility recently, mainly influenced by style rotation, but the medium and long-term coal price expectations are supported by macro policies and are expected to improve further. Fundamentally, the bottom of coal prices for the year has become essentially clear, and the full-year profit and dividend expectations of listed companies will also gradually become clear; the continuous accumulation of macro policies helps to stabilize medium and long-term coal price expectations. In addition, policies actively guiding long-term funds into the market also help to strengthen the sustainability of dividend styles, which is beneficial for the development of the sector's market.

Short-term thermal coal fundamentals: Coal prices show a weak stable trend, but still have support.

The supply at the production site has remained stable this week, and the demand side has benefited from the start of the northern winter storage, while the demand from non-electric and platform traders has also remained stable. However, compared to the intensity of stockpiling before the festival, there has been a slight decline in some coal mine quotations. It is expected that the production site prices will operate weakly and stably in the short term. In terms of ports, the terminal daily consumption has significantly decreased this week, downstream procurement demand has decreased, transactions are cold, and market sentiment has weakened. However, with cost support, traders are strong in their willingness to hold prices, and with the expectation of winter storage, it is expected that coal prices will remain stable in the short term.

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Short-term "double coke" fundamentals: The fifth round of coke price increases has been implemented, and coke prices have steadily risen.

In terms of coke, the fifth round of price increases has been implemented this week, with a cumulative increase of 250-275 yuan/ton since the end of September. Under the catalysis of macro policy expectations, the profits of the black series have significantly recovered, pig iron production has significantly increased, coke demand has improved, and with active procurement by traders, the sixth round of coke price increases has started, and it is expected that the probability of implementation is relatively large. After implementation, it is expected that coke prices will mainly be stable. In terms of coke coal, although the adjustment of steel prices this week has affected market sentiment, the steel start-up rate has increased, downstream procurement enthusiasm is high, and there is no sales pressure on coal mines. It is expected that coke coal prices will operate stable and strong in the short term.

High-frequency data focus: Port thermal coal prices have slightly fallen, and pig iron production has continued to rise.

On Saturday (October 12), the market price of Qinhuangdao 5500 kcal/kg thermal coal was 866 yuan/ton (a decrease of 5 yuan compared to the previous period). The spot price of Jintang port coke coal (produced in Shanxi) was 1950 yuan/ton (an increase of 100 yuan compared to the previous period), and the spot price of second-class metallurgical coke (produced in Tangshan) was 1750 yuan/ton (an increase of 100 yuan compared to the previous period). This week (as of October 12, the same below), the average daily railway input volume of Caoqinjinghuang four ports was 1.284 million tons (a decrease of 10.9% compared to the previous period), the average daily throughput volume of Qinhuangdao port was 474,000 tons (a decrease of 12.51% compared to the previous period), and the average number of ships at anchor in Qinhuangdao port was 13 (a decrease of 6 compared to the previous period). The inventory of Qinhuangdao port was 5.16 million tons (a decrease of 4.09% compared to the previous period), and the total coal inventory of the three northern ports (Caoqinjingtang) was 11.91 million tons (a decrease of 2.7% compared to the previous period). This week, the daily consumption of coastal eight provinces' power plants decreased by 3.41% compared to the previous period (an increase of 2.79% compared to the same period last year), and the inventory increased by 1.73% compared to the previous period (a decrease of 2.16% compared to the same period last year). The high furnace start-up rate of the national sample steel mills was 80.81% (an increase of 1.22 percentage points compared to the previous period), the pig iron production was 2.3308 million tons (an increase of 2.22% compared to the previous period), and the spot price of rebar (HRB400/20mm) was 3865 yuan/ton (an increase of 3865 yuan/ton compared to the previous period).

Market performance: The sector's volatile adjustment has underperformed the market, and "double coke" futures prices have significantly fallen.

This week, the CITIC Coal Primary Industry Index returned -5.73%, underperforming the CSI 300 Index by -2.48 percentage points, mainly due to market style rotation and the overall weak performance of dividend styles. The top three performing stocks were Zhengzhou Coal Electricity (+3.01%), Yunnan Coal Energy (+2.49%), and Baotailong (+0.93%). This week, the main contract of coke coal futures, JM2501, closed at 1484 yuan/ton (a decrease of 4.01% compared to the previous week), and the main contract of coke futures, J2501, closed at 2139 yuan/ton (a decrease of 5.23% compared to the previous week).

Risk factors:Macroeconomic fluctuations affect coal demand and coal prices; a relaxation in safety supervision leads to increased supply; systematic declines in overseas energy prices suppress domestic coal prices.

Investment Strategy:

Macroeconomic policies reverse market expectations, and the sector is expected to follow the broader market for further gains. The sector's gains before the holiday were weaker than the broader market, mainly due to the rotation of market styles. Fundamentally, the bottom of coal prices for the year has become more apparent, and the full-year earnings and dividend expectations of listed companies will also gradually become clear; the continuous accumulation of macroeconomic policies helps to stabilize expectations for medium to long-term coal prices. In addition, policies actively guiding long-term funds into the market also help to strengthen the sustainability of dividend styles, which is beneficial for the development of the sector's market performance.