Haitong Securities: The 25-year medium- and long-term contract signing process for electricity and coal begins to improve the profit center of leading high-quality coal companies

The Zhitong Finance App learned that Haitong Securities released a research report saying that the dust has settled on the US election, domestic fiscal policy is in line with expectations, and the fundamentals of the coal industry are stable. Currently, the daily consumption of power plants continues to rise, and the inversion of imports is further increasing. Port coal prices are expected to rise steadily at the beginning of the short-term peak season, while the opening of medium- and long-term contracts for electricity and coal in '25 is beneficial to the profit center of leading high-quality coal companies. The mid-term price center is still expected to remain high. The undervalued high dividend characteristics of coal companies continue to be recommended for long-term allocation values.

Haitong Securities's main views are as follows:

The signing of medium- to long-term contracts for electricity and coal in 25 years has begun, which is beneficial to improving the profit center of leading high-quality coal companies.

The WeChat account of the Electric Coal Circle quoted the National Development and Reform Commission as issuing a notice on the implementation of the 2025 medium- and long-term contract for electricity and coal. The bank compared and sorted out the main differences with the relevant documents in '24:

1) The contract volume of coal companies dropped from 80% to 75% of their own resources, and the annual fulfillment rate fell from 100% to no less than 90%; 2) the floating price in the pricing mechanism was increased from the original 3 indices to 4 indices (adding the China Electricity and Coal Purchase Price Index CECI); 3) The principle of “high quality and high price, low quality and low price” was added, and the supply and demand parties clarified the coal quality deviation settlement mechanism in the contract.

The Changxie Agreement signed a request for further relaxation in line with the general market trend of gradual easing of tension between coal supply and demand. The pricing mechanism continues. The new index is actually an index that will be replaced in 2022, with the aim of further enhancing price stability. Due to the high proportion of leading coal companies working together and low selling prices, easing the requirements of the Changjiang Association is expected to increase their sales prices. Furthermore, more emphasis will be placed on differences in coal quality to benefit high-quality and high-calorific value coal companies. In summary, the logic of high thermal coal prices will not be changed, and it will benefit leading high-quality coal companies to increase their profit centers.

The daily consumption of power plants continues to rise, and the inversion of imports is further increasing, and port coal prices are expected to rise steadily.

(1) As of November 22, the price of coal in Qingang was 824 yuan/ton, compared to -13/-113 yuan/ton (increase of -1.6%/-12.1%). The Yulin 5800, Ordos and Datong 5500 kcal indices ranged from -6/-5/-6 yuan/ton to 724/650/706 yuan/ton from week to week.

(2) On November 15-21, the average daily consumption of power plants in the 25 coastal and inland provinces was 5.58 million tons, +1.6% compared with the same period (5.4 million tons and +1.4% in the previous week, respectively); the average inventory was 135.98 million tons, +5.2% over the same period (13.547 million tons and +5% in the previous week, respectively).

(3) As of November 22, the four northern ports had stocks of 18.66 million tons, compared with +82/+4.62 million tons in the same period in 23/22 (+54/+5.1 million tons compared to the previous week).

The daily consumption of power plants continued to rise month-on-month this week, but the national temperature is warmer than the same period, so the increase is still limited. However, as the temperature gradually drops, demand is about to reach a peak in coal use, compounded by the reversal of imported coal prices, which is expected to fluctuate in the short term, but there may be limited room for decline. In the future, we still need to continue to pay attention to economic recovery and the actual release of demand driven by macroeconomic policies. Pay attention to the impact of safety supervision on production in major production areas.

Steel prices continued to decline during the off-season. Bifocal may maintain a fluctuating downward trend, but it is difficult to fall deeply.

(1) As of November 22, the third round of coke price cuts had been implemented, with a cumulative reduction of about 150 yuan/ton; the price of coking coal remained stable for the time being.

(2) As of November 22, on the supply side, the operating rate of coking plants was 73.2%, +0.7 pct; on the demand side, Mysteel's 247 steel mills nationwide produced 2.36 million tons of iron and water per day, -0.1%/+0.2% (+0.2% compared to the previous week).

Currently, downstream demand for coke and steel has entered a low season, and steel prices continue to decline, but overall iron and water production is stable, and demand is still supported. Considering the implementation of three rounds of price cuts for coke, profits from steel coke are basically close to break-even, and there is little chance of a further deep decline. In terms of coking coal, due to the slowdown in downstream procurement and relatively sufficient production and supply, the price of coking coal continues to be weak and stable, and may still fluctuate in a narrow range in the short term. However, in the medium term, considering that downstream coking coal stocks continue to be low, if marginal demand improves or eventual supply-side flexibility occurs, we need to pay attention to the demand situation of industrial chain terminals and the progress of steel mill replenishment in the later stages.

Risk warning: The impact of the sharp decline in downstream demand, stable supply and price, and production limit policies needs to be continuously tracked.