Key investment highlights for thermal coal: As of July 31, the price of thermal coal at northern ports stood at 825 yuan per ton (unchanged week-on-week). Examining the details:
On the production side, the sample coal mine capacity utilization rate in the Three West regions fell by 2.04 percentage points week-on-week. This significant supply tightening was mainly due to continued suspensions at many mines in northern Shanxi, compounded by temporary closures at a few mines in Yulin due to safety issues.
Regarding transport, weekly dispatch figures showed divergence. The average daily dispatch volume on the Daqin Line increased by 14.86 million tons week-on-week, while the average daily railcar count from the Hohhot Railway Bureau decreased by 5 trains week-on-week.
For imported coal, influenced by factors such as lower freight rates, the price spread for Q5500 thermal coal between domestic and Australian sources widened by 6 yuan per ton to 30 yuan per ton as of July 30. However, given the slow approval pace of Indonesia's RKAB in the second half of the year, imported coal prices may find short-term support.
On the demand side, widespread high temperatures across southern regions further drove up power plant daily consumption. The daily consumption of six major power plants rose by 230,000 tons week-on-week to 9.44 million tons.
Regarding power plant inventories, stocks at six major power plants decreased by 66,000 tons week-on-week to 143.98 million tons.
For non-electricity demand, downstream sectors like metallurgy and chemicals maintained stable demand. As of July 23, the cement operating rate was down 0.52 percentage points week-on-week. The methanol operating rate increased by 0.98 percentage points week-on-week, while molten iron output fell by 21,300 tons week-on-week to 2.355 million tons.
At the ports, destocking was notably effective this week, with northern port inventories falling by 1.655 million tons week-on-week. This was primarily due to increased spot demand from some power plants driven by higher consumption, combined with purchasing needs from some intermediaries, leading to a clear rise in dispatches from northern ports.
Overall, on the domestic supply front, strict safety supervision kept supply levels low and declining. For imports, the domestic-international coal price gap widened by 6 yuan per ton to 30 yuan per ton this week. On the demand side, hot weather pushed daily power plant consumption to a seasonal high, exceeding last year's levels. Non-electricity sectors maintained essential restocking, resulting in increased port dispatches. In terms of inventory and prices, northern port stocks fell by 1.655 million tons week-on-week, while port coal prices remained flat week-on-week.
Looking ahead, domestic supply is expected to stay low. On the demand side, as the main rain belt moves north, the middle and lower reaches of the Yangtze River are likely to continue experiencing hot weather. The peak demand season for power plants is expected to further boost consumption. If intermediate inventories are sufficiently drawn down, the momentum for coal price increases will strengthen further. Concurrently, with ongoing overseas geopolitical disruptions and ICE Brent crude oil remaining high at $91 per barrel as of July 31, attention should be paid to overseas energy market volatility and the domestic energy sector.
For coking coal and coke: Regarding coking coal, the sample coal mine capacity utilization rate fell by 1.18 percentage points week-on-week to 68.57%, intensifying the supply tightness. This was mainly due to additional production halts in some Shanxi mines because of inspections and expired mining permits, as well as suspensions in some Shaanxi mines due to safety hazards. According to statistics from a coal resource website, as of July 31, a total of 62 coking coal mines were suspended in five cities (Changzhi, Taiyuan, Jinzhong, Luliang, Linfen), involving a capacity of 75.8 million tons. The number of suspended mines increased by one day-on-day but was 57 fewer than on May 25. Suspended capacity increased by 1.2 million tons day-on-day but was down 58.7 million tons compared to May 25. For Mongolian coal, the number of trucks passing through the Ganqimaodu border port gradually recovered to high levels this week, with an average of 1,275.1 trucks (seven-day average), an increase of 171 trucks week-on-week. On the demand side, molten iron output fell by 21,300 tons week-on-week to 2.355 million tons this week. After coking plants depleted their raw material inventories to low levels, procurement demand picked up. On the inventory side, coking coal stocks at production enterprises fell by 51,200 tons week-on-week. Overall, with strict safety supervision, supply remains low. Although the market may price in production resumption, causing futures prices to decline rapidly, it remains difficult to determine if post-resumption output can return to pre-accident levels. Furthermore, against a backdrop of low supply, inventories across the coking coal chain continue to decrease. There is an expectation that subsequent restocking will boost coal prices. This week, the port-side coking coal price was 2,090.00 yuan per ton, flat week-on-week. We expect short-term prices to undergo volatile adjustments. Around mid-to-late August, with downstream restocking and expectations for molten iron output recovery during the peak 'Golden September and Silver October' season, coal prices are expected to regain upward momentum.
For coke: On the supply side, the coking plant capacity utilization rate fell by 0.1 percentage points week-on-week to 73.90%. The continued decline in supply was mainly due to two consecutive price reduction rounds for coke, which continuously weakened coking plant profits, with some plants maintaining high inventory levels. On the demand side, molten iron output fell by 21,300 tons week-on-week to 2.355 million tons this week. On the inventory side, coke stocks at independent coking plants rose week-on-week. Overall, the coke market is showing a weak trend. This week, coke saw its second round of price cuts, with reductions of 50-55 yuan per ton. Future attention should focus on upstream coal prices and downstream steel product prices.
From a broader perspective, the logic of supply-side constraints in the coal mining industry remains unchanged. Demand may fluctuate periodically, and prices will experience some volatility and dynamic rebalancing. Reviewing 30 years of industry experience, coal prices show a long-term upward trend driven by factors including rigid increases in labor costs, continuously rising safety and environmental investments, price increases for bulk raw materials and power, and increased tax collection by local governments. Looking at the industry's long-term development, these driving factors persist, and coal prices have an inherent tendency to rise over the long term. The path may be曲折, but the direction should be clear.
Leading coal companies possess high-quality assets and strong cash flows on their balance sheets, exhibiting "five-high" characteristics: high profitability, high cash flow, high barriers to entry, high dividends, and a high margin of safety. Furthermore, starting from 2025, several central and state-owned coal enterprises, including China Energy, Shandong Energy Group, China Coal Energy Group, and State Power Investment Corporation, have initiated share buybacks and asset injection plans for their listed subsidiaries. This releases positive signals, demonstrating the coal companies' confidence in their development and enhancing their growth prospects and stability. It is recommended to focus on the value attributes of the currently low-valued coal sector, maintaining a "recommended" rating for the coal mining industry.
Key stocks to watch: (1) Stable performers: China Shenhua, Shaanxi Coal Industry, China Coal Energy, SPIC Yuanda Energy, Xinji Energy. (2) Thermal coal stocks with higher elasticity: Yankuang Energy, Jinneng Holding Shanxi Coal Industry, Guanghui Energy, Power Development. (3) Coking coal stocks with higher elasticity: Henan Shenhuo Coal & Power, Huaibei Mining, Pingdingshan Tianan Coal Mining, Shanxi Lu'an Environmental Energy Development, Shanxi Coking Coal.
Risk warnings: 1) Risk of economic growth falling short of expectations. 2) Risk of policy control intensity exceeding expectations. 3) Risk of continued substitution by renewable energy. 4) Risk from coal import impacts. 5) Risk of key companies' performance falling short of expectations. 6) Risk of estimation errors. 7) Risk of disruptions from coal mine accidents. 8) Risk of coal prices declining more than expected. 9) Global trade friction risk.