Cathay Pacific Haitong: The transformation of the electricity consumption structure has accelerated and coal prices have reached an inflection point

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that China's electricity consumption structure is undergoing landmark changes. The share of electricity consumption in the three sectors and residents has risen to 50% of the marginal increase, leading to a significant decline in the correlation between electricity demand and economic growth. The moment when thermal power faced the greatest pressure to replace new energy sources in 2025 may be over. Coal prices entered the peak season upward cycle on June 20. The bottom characteristics are clear as the supply and demand pattern improves. Prices are expected to rebound and establish a new bottom of 620-650 yuan/ton.

Cathay Pacific Haitong's main views are as follows:

Judging from the structural changes in the electricity consumption of the whole society, the impact of the economy on electricity consumption is rapidly weakening

Over the past 20 years, secondary generation of electricity (mainly manufacturing) has been the core driving the growth of electricity demand. Due to the strong correlation between manufacturing and the economy, it has also given rise to the market's inherent concept of a strong correlation between the economy and electricity demand. However, the bank observed that the electricity consumption elasticity coefficient (electricity consumption growth/GDP growth rate) rapidly increased from about 1 to 1.3-1.4 from the historical average after 2018. The reason behind this is that the electricity consumption structure is undergoing landmark changes. The third generation (mainly charging and switching for new energy vehicles, AI, etc.) and the electricity consumption of urban and rural residents (increase in electrification rate) already account for half of the marginal increase in electricity consumption in 2024. The resilience of electricity demand is increasing, and the direct correlation with the economy is declining.

The electricity consumption of the entire society in 2025Q1 was only 2.5%. The reason behind this is mainly the lack of electricity consumption for urban and rural residents due to the warm winter; at the same time, new energy generation is likely to put the greatest pressure on thermal power in the medium term

After experiencing a 6.8% increase in electricity consumption in 2024, the 2025Q1 growth rate was only 2.5%. The increase slowed down and was significantly lower than GDP growth. The core is that the warm winter caused the electricity consumption growth rate of urban and rural residents to only 1.5% (10.6% in 2024). The bank observed that as the weather warmed up in April-May, the monthly electricity consumption rate of urban and rural residents quickly recovered to 7% and 9.6%, which also led to a recovery in the electricity consumption of the whole society. It may have predicted in advance that Q1 will be the bottom of the annual electricity consumption growth rate. Due to the slowdown in the growth rate of electricity consumption in the whole society and the record high of new energy installed capacity in 2024, thermal power generation fell 4.1% year-on-year from January to April 2025, greatly suppressing the main demand for coal thermal power. Looking at the short term, with the recovery of electricity consumption throughout society, thermal power resumed positive growth of 1.2% in May, and the period of greatest pressure throughout the year may have passed. Looking at the medium term, the PV 430 and 531 new policies will cause the yield of new energy installations to drop markedly in the future. The peak of new energy installations may be established in 2024. In the future, with steady growth on the demand side, the marginal replacement pressure of new energy sources on thermal power will decrease, and the period of greatest pressure on thermal power in the medium term will be 2025.

The fundamentals of this round of coal may be clear; the price inflection point is now

On June 20, port coal prices finally began to rise in anticipation of the market entering the peak season. The reflection behind this is the continuous improvement in the supply and demand pattern since May. The bank discussed the bottoming out of demand for thermal power above, while the supply-side production showed a marked decline in April-May compared to Q1, reflecting spontaneous production cuts due to industry economy when port prices fell below 650 yuan/ton; compounded by the deterministic contraction and reduction shown by the import side in January-May, total supply is expected to decline steadily throughout the year. The bank believes that the coal supply and demand pattern has improved rapidly from this cycle of decline. The bottom characteristics are clear. It is optimistic that the price rebound during the peak summer electricity consumption will rebound and the subsequent price bottom will be established at 620-650 yuan/ton.

Risk warning: Macroeconomic growth falls short of expectations, imported coal enters on a large scale, and supply exceeds expectations.