Shanxi Securities: Coal supply continued to pick up in October, domestic coal prices are expected to remain high in winter

The Zhitong Finance App learned that Shanxi Securities released a research report saying that from January to October 2024, the cumulative production of raw coal reached 3.892 billion tons, an increase of 1.20% over the previous year, and a decrease in the year-on-year growth rate compared to the same period in 2023. Among them, raw coal production reached 412 million tons in October, up 4.60% year on year. Supply rebounded slightly but fell slightly from month to month. On the supply side, safety supervision of coal-producing areas tends to be normalized. Supply in coal-producing areas is increasing. Meanwhile, the recent resumption of production in Shanxi has continued. In October, supply rebounded year on year but declined slightly from month to month. On the demand side, the growth rate of thermal power declined in October. Demand for coal use in winter has yet to be released as the temperature recovers, and thermal coal prices in domestic ports are weak and stable. Looking ahead to the future market, supply will return to normal, and demand is still expected. Combined with increased uncertainty about foreign trade coal, domestic coal prices are expected to remain high in winter.

The main views of Shanxi Securities are as follows:

Supply: From January to October, the supply of raw coal increased slightly compared to the same period in '23. From January to October 2024, the cumulative production of raw coal reached 3.892 billion tons, an increase of 1.20% year on year. The year-on-year growth rate decreased compared to the same period in 2023. Among them, raw coal production reached 412 million tons in October, up 4.60% year on year. Supply rebounded slightly but fell slightly from month to month.

Demand: Investment in manufacturing continued to increase in January-October, and overall downstream demand was under pressure. The overall growth rate of fixed asset investment is stable, and investment in manufacturing is growing rapidly. Fixed asset investment increased 3.4% year-on-year from January to October '24 (up 0.5 percentage points over the same period in '23). Among them, investment in manufacturing increased by 9.30% (up 3.1 percentage points from the same period last year), investment in infrastructure increased by 4.3% (down 1.6 percentage points from the same period last year), and investment in real estate decreased by 10.3% (up 1.0 percentage point from the same period last year). The cumulative growth rate of thermal power from January to October '24 was 1.90%, down 3.80 percentage points from the same period last year; the cumulative growth rate of coke was -1.10%, down 4.00 percentage points from the same period last year; the cumulative growth rate of pig iron was -4.00%, down 6.30 percentage points from the same period last year; and the cumulative growth rate of cement was -10.30%, down 9.20 percentage points from the same period last year.

Imports: Import volume continued to grow in January-October, and the year-on-year growth rate in October increased compared to the same period last year. The total import volume from January to October 2024 was 435.37 million tons, up 13.50% year on year. In October, 46.25 million tons were imported, up 28.51% year on year, up 28.51% year on year.

Price and profit: The overall price of thermal coal remained stable, and the overall price of coking coal showed a month-on-month recovery. The average price of unmixed 5,500 thermal coal in Shanxi was 865 yuan/ton in October, down 14.68% year on year and 0.64% month on month. The average price of main coking coal in Jingtang Port in October was 1,889 yuan/ton, a year-on-year decrease of 23.36% and a year-on-month increase of 6.09%. The average price of grade 2 metallurgical coke in Tianjin Port in October was 1,766 yuan/ton, down 19.74% year on year and 13.92% month on month.

Investment recommendations:

On the supply side, safety supervision of coal-producing areas tends to be normalized. Supply in coal-producing areas is increasing. Meanwhile, the recent resumption of production in Shanxi has continued. In October, supply rebounded year on year but declined slightly from month to month. On the demand side, the growth rate of thermal power declined in October. Demand for coal use in winter has yet to be released as the temperature recovers, and thermal coal prices in domestic ports are weak and stable. In terms of coking coal and coke, demand is weak; incremental demand for non-electric coal consumption is still limited. Downstream steel mills have a high operating rate, and rebar stocks are relatively low. Combined with favorable policy expectations, coking coal prices are supported month-on-month.

Overall, due to strict normalization of safety supervision, and there is still room for economic stabilization policies, there are still marginal improvements in economic stabilization policies such as real estate and infrastructure in the later stages. At the same time, coal use for thermal power is expected to improve marginally in winter. Demand for coal is very rigid, making it difficult to further ease the relationship between coal supply and demand in 2024, and there is no possibility that coal prices will fluctuate significantly in the fourth quarter.

Recommended targets

Shanxi Securities said that with the continuous implementation of monetary instruments such as repurchases to increase holdings and reloans and SFISF, arbitrage transactions are expected to continue to deepen the value of coal dividends. It is recommended to focus on varieties with high dividends with high flexibility and stable dividend varieties.

In terms of flexible dividend varieties, they are relatively more optimistic about Guanghui Energy (600256.SH), Pingmei Co., Ltd. (601666.SH), Yankuang Energy (600188.SH), Hengyuan Coal and Electricity (), Haohua Energy (DAB), Huaibei Mining (Sichuan), and Jinkong Coal (Singapore). 600971.SH 600378.SH 600985.SH 601001.SH

In terms of stable and high-dividend varieties, they are relatively more optimistic about China's Shenhua (601088.SH), Shaanxi Coal (601225.SH), and China Coal Energy (601898.SH).

Coal companies in Shanxi frequently expand storage. Based on the price of a single ton of traded resources, the market value level is far higher than the current market value. Early production cuts have run out of profit, and the valuations of related companies have a lot of room for repair. It is recommended to focus on Huayang Co., Ltd. (600348.SH), Lu'an Huanneng (601699.SH), and Shanxi coking coal (000983.SZ).

Risk warning: supply release exceeded expectations; demand side improvements fell short of expectations; EU coal gap fell short of expectations, imported coal poured into the domestic market in large quantities; strong price control; failure to transform coal companies.