Guotai Junan Securities: The peak season for non-electric demand in September and October is approaching, and improvements in the coal industry can be expected

According to the Zhitong Finance APP, Guosen Securities released a research report stating that the negative factors for the coal industry in the second quarter have been exhausted, and the peak season for non-electric demand in September and October is approaching. There are still expectations of supply contraction, and the bottom of coal prices has been verified, making a rebound likely. It is recommended to focus on: ① Growth targets: Electric Power Investment Energy (002128.SZ), XINJI ENERGY (601918.SH); ② Medium to long-term stable targets: China Shenhua (601088.SH, 01088), CHINA COAL (601898.SH, 01898), Shaanxi Coal and Chemical Industry (601225.SH); ③ Elastic targets: JHSCIC (601001.SH), hbky (600985.SH); ④ Leading coal machinery company Tiandi Technology (600582.SH), etc.

Guosen Securities' main viewpoints are as follows:

Coal Industry Q2 2025 Performance Summary: Performance Bottoming Out, Improvement Expected

In the second quarter, national raw coal production remained high, while the consumption of commercial coal decreased by 11.8% month-on-month during the off-season. The supply and demand were clearly loose, coupled with high social inventory, leading to a continuous decline in coal prices. Except for the coking coal sector benefiting from the price of coking coal, the performance of coal companies was generally under pressure and bottoming out. By sector, benefiting from the dual-track pricing system, the price decline for thermal coal companies was relatively small, resulting in a smaller profit decline; the profitability of the anthracite sector saw the largest decline, mainly due to the low proportion of long-term contract coal; the price decline for coking coal was also relatively small, mainly because coal prices have fallen to the bottom; the coal chemical sector also benefited from the decline in coal prices, but the price decline on the product side was larger, leading to a decrease in profitability. At the company level, leading coal companies, such as China Shenhua and CHINA COAL, maintained relatively stable performance due to a higher proportion of long-term contract coal and effective cost reduction, highlighting their core competitiveness. In the second half of the year, with demand improvement and coal price rebound, performance improvement for coal companies is expected.

Supply: July Coal Production Decreased, Imports Slightly Recovered, Supply Contraction Expectations Remain

Due to rainfall and checks on overproduction, coal production in July significantly declined during the peak season; this impact may continue into August. Current expectations for supply tightening remain. In July, domestic supply decreased by 40 million tons month-on-month and also decreased by 9 million tons year-on-year; by production area, the output of the four major producing areas all decreased, with Xinjiang showing the largest month-on-month reduction. As of August 24, the cumulative output of sample coal mines in August maintained a slight decline year-on-year and month-on-month. In July, domestic coal prices rose, and imported coal regained price advantages, with import volumes recovering month-on-month, but still at relatively low levels compared to previous years. In July, imports of coal and lignite totaled 35.61 million tons, a year-on-year decrease of 22.9% and a month-on-month increase of 7.8%. By region, the increase in Indonesian coal was significant, while imports of Russian coal declined.

Demand: Significant Improvement in Peak Season Thermal Power Demand, Non-Electric Demand in September and October is Approaching

July entered the demand peak season, with thermal power generation accelerating month-on-month, maintaining strong demand for chemical coal, and relatively high pig iron production, but cement demand was poor. Overall, the demand for commercial coal in July showed significant improvement. Looking ahead to September, although the summer peak season for electricity consumption has ended, the non-electric consumption peak season in September and October is approaching, coupled with subsequent winter storage demand, indicating that coal demand is still supported. In July, national commercial coal consumption was 450 million tons, an increase of 1.9% year-on-year and an increase of 12.5% month-on-month From the perspective of downstream, the demand in July's peak season showed significant improvement, with the total electricity consumption in society breaking 1 trillion kWh for the first time, a year-on-year increase of 8.6%, and the growth rate improved by 3.2 percentage points compared to June. During the peak demand season, the wind power off-peak season, and the year-on-year decline in hydropower, thermal power in July increased by 4.3% year-on-year, with the growth rate improving by 3.2 percentage points compared to June, showing a clear improvement. The demand for chemical coal remains high. As of August 29, the year-on-year increases for coal-based PVC, coal-based ethylene glycol, and coal-based methanol in 2025 were 2.8%, 12.4%, and 14.4%, respectively. From January to August, the cumulative production of synthetic ammonia increased by 9.8% year-on-year, with August production up 14.3% year-on-year. Steel mills are still profitable, with high production enthusiasm, maintaining an average daily pig iron output of over 2.4 million tons; steel exports increased by 25.7% year-on-year. Downstream demand is weak, with July cement production down 5.6% year-on-year, continuing to decline.

Inventory: Inventory decreases at all levels, port inventory lower than the same period last year

Inventory decreases at all levels, with port inventory lower than the same period last year. The low port inventory may support coal prices, and attention should be paid to future inventory recovery. Mainstream port inventories have significantly declined, down 6.3% compared to the same period last year; coal enterprises' sales have improved, with the inventory of the six major state-owned key coal mines in China down 8.63% month-on-month in July, but up 15.04% year-on-year; power plant inventories are slightly higher than the same period last year. Pig iron production remains high, with good downstream demand, and coking coal inventories are significantly higher than the same period last year, while port inventories are fluctuating downwards.

Price: Supply contraction expectations & non-coal demand support in September and October, coal prices are expected to stop falling and rebound

In terms of thermal coal, during the peak season, under the influence of high demand, checks for overproduction, and frequent heavy rain, coal prices rebounded unexpectedly close to 100 yuan/ton. Currently, with daily consumption decreasing, coal prices have retreated from their highs. Considering the support from the non-electric demand peak season in September and October, the downside potential in this round is expected to be limited. For coking coal, with the peak season approaching, attention should be paid to domestic checks for overproduction, the clearance of Mongolian coal, and the recovery of downstream production after major events, with coal prices expected to remain volatile.

Risk Warning: Overseas economic slowdown; large-scale capacity release; substitution by new energy; impact of safety accidents