Recent abrupt temperature drops across northern China have triggered an early surge in coal demand. On October 25, Mohe in Heilongjiang recorded -25°C, setting a new record low for late October, while parts of Inner Mongolia's Hulunbuir plunged below -30°C, marking the coldest decade for this period. With snow accumulation exceeding 30cm (nearing 50cm in some areas) in Heihe and Mohe, cities like Zhangjiakou and Daqing have initiated early heating services, officially kicking off coal's seasonal consumption peak.
Demand drivers include approaching winter consumption peaks, sustained high demand from steel mills and thermal power plants, while supply constraints stem from ongoing "anti-overproduction" policies and upcoming safety inspections targeting excess capacity. These factors collectively reinforce expectations of supply contraction, supporting coal price stabilization and recovery. Market-wise, capital has responded swiftly: Since October, Futu's Coal Index (LIST1044) rose 11.19%, while Shenwan's Coal Index briefly gained 16%. Northbound capital inflows exceeded ¥2 billion into coal stocks, making the sector one of the hottest in secondary markets.
After a sluggish H1 2025 with oversupply and weak demand, the current alignment of seasonal demand and policy-driven supply cuts may catalyze a sector turnaround. Q3 fundamentals already show sequential improvements among major players. CHINA SHENHUA (01088) saw Q3 revenue decline narrow to 12.56% YoY (vs H1's 16.05% drop), with coal business gross margin rising to 30.5% through cost controls. Similarly, CHINA COAL (01898) posted a 28.3% QoQ profit rebound, with self-produced coal margins up 5.9 percentage points to 48.7%.
Price rebounds have been instrumental: Q3 thermal coal (5,500 kcal) at Qinhuangdao port averaged ¥672/ton (+6.5% QoQ), while coking coal at Jingtang port surged 18.8% to ¥1,562/ton. Supply-side "overproduction audits" have significantly tightened the market, with domestic output turning negative YoY in July-August (-3.8% and -3.2% respectively). This propelled Qinhuangdao thermal coal prices up 12.6% in Q3 to ¥699/ton by September 30. Notably, leading producers maintained stable output, with CHINA SHENHUA's Q3 production up 2.3% YoY and YANCOAL AUS (03668) reporting 3% higher sales volume.
Seasonal tailwinds are strengthening as northern heating expands, while potential La Niña conditions could amplify winter demand. Tianfeng Securities revised its thermal coal price target to ¥750-800/ton, citing supply constraints and early heating needs. Coking coal finds support in robust steel production, with blast furnace output at 2.4 million tons/day (+100,000 YoY) and 90% of listed steel mills profitable in Q3.
Valuation metrics underscore opportunity: As of October 24, the coal sector trades at 14.82x P/E (5th lowest among A-shares) and 1.38x P/B (7th lowest). Generous dividends persist, with CHINA SHENHUA paying ¥0.98/share interim dividend and CHINA COAL distributing 40% of H1 profits. This combination of cyclical recovery potential, high yields, and depressed valuations creates a compelling "double margin of safety" for sector revaluation, despite long-term energy transition challenges.