Orient Securities: The supply and demand pattern of the coal industry has reversed the overall fundamentals of the industry and maintained a positive trend

The Zhitong Finance App learned that Orient Securities released a research report saying that after the “anti-internal circulation” related concept was proposed, the supply and demand pattern of the coal industry has been reversed, the overall fundamentals of the industry have maintained a positive trend, coal prices have long-term upward momentum, and coal prices are expected to maintain a central upward trend in 2026-2027. Capital expenditure in the coal industry is expected to enter a downward trend starting in 2026, and the degree of easing of coal supply and demand will be less than in 2025.

Orient Securities's main views are as follows:

Outlook: 2026 will be a year where the coal industry is bottoming out

(1) The complete cycle of the coal industry is around 10 years. The last cycle was 2011-2021. During this period, coal prices showed the characteristics of “high at both ends and low in the middle”. In this cycle, coal prices have experienced a downward cycle of more than 3 years since reaching a phased high in Q4 2021 (marked by the delisting of thermal coal futures). 2026 is most likely to be a year where the coal industry is bottoming out; (2) From a policy perspective, 2026 is highly similar to 2016. In November 2015, country leaders met at the Central Financial and Economic Leadership Group “Supply-side reforms” were first proposed above, marking the bottom of coal prices in the previous cycle. In July 2025, at the 6th meeting of the Central Committee on Finance and Economics, national leaders proposed to control the disorderly competition of enterprises at low prices and promote the orderly exit of backward production capacity. The “anti-internal roll” officially entered everyone's eyes, which may also mark the bottom of coal prices in the current cycle; (3) capital expenditure in the coal industry is expected to enter a downward trend starting in 2026. Since 2021, the scale of projects under construction in the coal sector has generally been stable. The new capital expenditure is not mainly used for newly planned production capacity, and the scale of capital expenditure in the coal sector has not expanded drastically. As coal prices fall, industry profits have shrunk sharply, and capital expenditure in the coal industry will enter a downward trend starting in 2026.

Supply and demand: Supply is expected to remain limited in 2026, and supply and demand will continue to be tight

(1) Supply side: Coal production in the eastern region has shown a declining trend. Although the Xinjiang region has the potential to increase production, the operating rate of coal companies is high. Combined with the “reverse internal volume”, the operating rate of coal companies is limited, and it is expected that supply will be difficult to increase; (2) Demand side: from January to September 2025, the cumulative year-on-year ratio of new real estate construction area in China is -15.0%. If this growth rate is maintained throughout the year, then China's per capita new construction area may have dropped to 0.45 square meters per person in 2025. It is already below the lowest level in Japanese history, close to the lowest level in US history, with limited room for further decline; At the same time, the one in the “136” document In the context, the installed volume of new energy sources declined markedly after May 31, 2025, and it is expected that the squeezing effect of new energy on coal power will gradually decrease; (3) Comparison of supply and demand: it is expected that the moment of maximum pressure on supply and demand has passed, and the degree of easing of coal supply and demand in 2026 will be less than in 2025.

Coal prices are expected to fluctuate upward in 2026, and fluctuations are likely to increase

(1) Thermal coal futures are expected to return in 2026. On September 30, 2025, the Zhengzhou Commodity Exchange issued two key announcements, marking that the systematic and step-by-step restart of thermal coal futures has begun. At the same time, thermal coal port inventories have now fallen below the same period last year, and low inventories will bring greater elasticity to coal prices; (2) There is a price relationship between coking coal and thermal coal, and the increase in thermal coal fluctuations will affect the price of coking coal. Since 2013, the ratio center of coking coal futures to the price of 5,500 kcal thermal coal is about 2 times. Currently, the ratio of coking coal futures to the price of 5,500 kcal thermal coal is around 2 times. times, It is at an extremely low level in history. Currently, the overall inventory level of the coking coal industry is lower than that of thermal coal, and in theory, price flexibility is also greater.

Investment suggestions: (1) Long-term preferred and steady dividend targets: China Shenhua and China Coal Energy; (2) Flexible targets benefiting from rising coal prices: Shaanxi coal industry and Jinkong coal industry.

Risk warning: (1) Real estate related data falls short of expectations. The steel, cement and other industries downstream of coal are greatly affected by real estate demand. If real estate related data falls short of expectations, coal demand may fall short of expectations. (2) Hydropower output exceeded expectations. Overdue hydropower output will crowd out thermal power generation, leading to lower demand for coal than expected; (3) Overseas coal prices will drop sharply. A sharp drop in overseas coal prices may lead to a significant increase in coal imports, which will drive domestic coal prices to fall; (4) Changes in assumptions affect the calculation results. If the assumptions in the article change, the measurement results may deviate from the expectations.