Minsheng Securities: Coal prices have fallen over, supply is shrinking, and thermal coal is about to rebound

The Zhitong Finance App learned that Minsheng Securities released a research report saying that the coal industry is currently facing double pressure from falling prices and shrinking supply, but the peak of electricity consumption in summer will weaken when combined with hydropower squeezing, and demand for thermal coal is approaching an inflection point. Leading enterprises of Gao Changxie stand out with their “stable profit+low debt+high cash+high dividend” attributes. At the same time, they enhance medium- to long-term competitiveness through asset injections and share increase plans, and are optimistic about sector valuation repair. In terms of targets, the bank recommends the following main investment lines: 1) steady performance of industry leaders; 2) targets with steady performance and high net cash growth; 3) steady performance and year-on-year growth in production; 4) integrated coal and electricity growth targets.

The main views of Minsheng Securities are as follows:

Prices have plummeted and effective supply has declined

As of April 2025, the proportion of loss-making companies in the coal industry accounted for more than half, reaching 53.64%, the highest level since 2018. Judging from the month-on-month production data for April, Inner Mongolia and Xinjiang saw large month-on-month declines, with month-on-month declines of more than 20% month-on-month. The bank believes this is mainly due to the decline in profits from overseas coal transportation under price pressure and the reduction in profit margins for low-price coal, mainly from open pit mines. Judging from the production data of 442 sample coal companies in Jinshan, Shaanxi, and Mongolia, production after April 2025 was slightly lower than the same period last year. If coal prices continue to be sluggish in the future, the bank can expect that the probability that domestic coal companies will passively and actively cut production will gradually rise.

The hydropower squeeze is weakening, and electricity demand is about to rebound

Affected by factors such as temperature, the average daily power generation rate was +3.32% year on year in mid-May. The hydropower base was high last year. Although water is currently normal this year, the average daily hydropower generation is -14.37%. Against this background, the average daily power generation of thermal power generation is only -0.27% year on year. Later, with the peak of summer electricity consumption, the growth rate of thermal power generation is expected to correct.

Thermal coal prices are expected to rebound strongly

The inflection point in demand for thermal coal will arrive as summer temperatures rise, while the supply side tightens slightly, and prices are expected to rebound. The bank is expected to reach a high point during the peak of daily consumption in July-August. In terms of coking coal, with the establishment of the bottom of the price of thermal coal, the bottom of the price of coking coal is also expected to be established at the same time. In the context of easing trade conflicts, it will drive a certain amount to seize export demand. The bank expects the overall price of coking coal to be stable.

The uncertainty of the international situation has increased, and the value of stable and high dividends has increased

The coal sector is less affected by the trade conflict between China and the US, and the investment value reflected in stable and high dividends has once again increased, while leading enterprises of the High and Long Term Cooperation have benefited from the “stable profit+low debt+high cash+high dividend” attributes. At the same time, they use abundant cash to expand at low cost on the basis of safeguarding shareholder returns, or guarantee the continuation of resources through primary market auctions under the rigid supply of coal resources, which also has medium- to long-term growth attributes. In addition, a number of coal state-owned enterprises have recently launched share increases and asset injection plans for their listed companies, which helps boost market confidence and optimize asset structures, in improving listed companies Long-term growth and market competitiveness are optimistic about increasing sector valuations.

Investment advice

In terms of targets, the bank recommends the following main investment lines: 1) Industry leaders have steady performance. It is recommended to focus on China's Shenhua, Shaanxi coal industry, and China Coal Energy. 2) For growth targets with steady performance and high net cash, it is recommended to focus on the Jinkong coal industry. 3) Steady performance and year-on-year increase in production. It is recommended to focus on Shanmei International and Huayang shares. 4) For coal-electricity integrated growth targets, it is recommended to focus on Xinji Energy.

Risk warning: 1) the risk of economic growth slowing; 2) the risk of a sharp drop in coal prices; 3) the recovery in overseas demand falls short of expectations, and the risk of a sharp increase in import volume.