Guotai Junan Securities: Expectations of supply contraction raise the bottom of coal prices, and seasonal demand release may open up upward space for coal prices

According to the Zhitong Finance APP, Guosen Securities released a research report stating that from mid-2024 to now, the decline in coal prices and poor profits of coal companies have led to this situation. However, after the rebound in coal prices in the second half of 2025, the profits of coal companies are expected to improve, and the coal prices in the fourth quarter have upward elasticity. Coupled with the recent market recovery, the coal sector has performed significantly worse than other sectors, and the bottom is clear, making the fourth quarter rebound of the sector promising. In terms of thermal coal, the substantial progress in checking overproduction and stricter safety inspections have led to a rapid halt and rebound in coal prices after the National Day holiday, reflecting the continuous strengthening of supply tightening expectations, raising the bottom of coal prices, and the release of demand in the peak season may open up upward space for coal prices. The central price of coal in the fourth quarter is expected to look towards 750 yuan/ton.

The main views of Guosen Securities are as follows:

From the changes in PE and PB, grasp the timing of the coal industry's bottom reversal in 2020

Looking at the changes in PE and PB in the coal sector, it can be found that after the previous high-speed development period, both PE and PB have shown a downward trend. During this period, there were two significant divergences in PE and PB. The first was from 2014 to 2017, mainly driven by the previous bull market that pushed the index up, while later, due to poor profits of coal companies, PE remained high. The second divergence is from mid-2024 to now, initially due to the decline in coal prices and poor profits of coal companies, but after the rebound in coal prices in the second half of 2025, profits of coal companies are expected to improve, and the coal prices in the fourth quarter have upward elasticity. Coupled with the recent market recovery, the coal sector has performed significantly worse than other sectors, and the bottom is clear, making the fourth quarter rebound of the sector promising.

Supply: Production in July/August decreased year-on-year due to rainfall and overproduction checks, expected slight decline in annual production

In July, the national raw coal production reached 380 million tons, a month-on-month decrease of 40 million tons (-9.5%), and a year-on-year decrease of 9 million tons (-3.8%); in August, the national raw coal production reached 390 million tons, a year-on-year decrease of about 6 million tons (-3.2%), and a month-on-month increase of 9 million tons (+2.5%). It is calculated that the average monthly production from January to June 2025 is 401 million tons, and the average monthly production in July and August is 386 million tons. If the national safety inspections maintain the level since July, assuming the average monthly production from September to December is 386 million tons, the total raw coal production for 2025 is expected to be about 4.71 billion tons, a year-on-year decrease of 1.1%. By production area, the reduction mainly comes from Inner Mongolia and Xinjiang, with expected annual production decreases of -3.7% and -4.6%, respectively.

The import volume in July/August rebounded, with an expected annual decline of about 16%. In July, the import of coal and lignite was 35.61 million tons, a year-on-year decrease of 22.9%, and a month-on-month increase of 7.8%; in August, the import of coal and lignite was 42.74 million tons, a year-on-year decrease of 6.7%, and a month-on-month increase of 20%. The average monthly coal import volume from January to June was 37 million tons, and the average monthly coal import volume in July and August was about 39.18 million tons, showing some recovery. Assuming the average monthly import volume from September to December is 39.18 million tons, the total import volume for 2025 is expected to be 460 million tons, a year-on-year decrease of 15.8%, with the reduction mainly coming from Indonesian coal.

Demand: Expectations of a cold winter increase, waiting for winter demand to be released From the perspective of downstream demand, in July and August, the total electricity consumption of the whole society broke one trillion kilowatt-hours twice during the peak demand season, with thermal power increasing by 4.3% and 1.7% year-on-year respectively. The slowdown in growth in August is mainly due to the high base from the same period last year. Considering the high temperature factors in the third quarter and the low base from the fourth quarter of last year, the China Electricity Council expects that the growth rate of electricity consumption in the second half of this year will be higher than that in the first half, with a year-on-year growth of 5%-6% in national electricity consumption by 2025. In addition, there may be a dual La Niña weather occurrence in the autumn and winter of 2025, increasing the probability of a cold winter in China, which is beneficial for the release of winter demand in November and December. The demand for chemical coal remains high.

As of October 10, 2025, the year-on-year increases for coal-based PVC, coal-based ethylene glycol, and coal-based methanol are 2.6%, 12.9%, and 13.1% respectively. From January to September, the cumulative output of synthetic ammonia increased by 9.0% year-on-year, with a year-on-year increase of 2.7% in September. The average daily pig iron output is expected to remain above 2.4 million tons for an extended period in 2025, with the average daily output of pig iron as of October 10, 2025, increasing by 3.9% year-on-year. The export volume of steel in the fourth quarter may be affected by tariffs. Downstream demand remains weak, and cement production continues to decline.

Inventory: Inventory pressure in various links has significantly eased compared to the first half of the year, supporting the rebound in coal prices

The inventory at major Chinese ports is 60.43 million tons, down more than 18 million tons from the mid-May peak, and lower than the same period last year by 5.8%. Coal companies have improved sales, leading to a decrease in inventory. In August, the inventory of six major state-owned coal mines in China was 24.23 million tons, down 8.25% month-on-month and up 0.48% year-on-year, returning to the level of the same period last year. The inventory at power plants is slightly higher than the same period last year. The pig iron output remains high, with good downstream demand and coking coal inventory higher than the same period last year; the supply-demand pattern has improved, and port inventory is significantly lower than the same period last year.

Price: Expectations of supply contraction raise the bottom of coal prices, and seasonal demand release may open up upward space for coal prices

In terms of thermal coal, the investigation of overproduction continues to be effectively promoted, and safety inspections are becoming stricter. After the National Day holiday, coal prices quickly stopped falling and rebounded, reflecting the continued strengthening of expectations for supply tightening, raising the bottom of coal prices. The release of seasonal demand may open up upward space for coal prices. The price center for coal in the fourth quarter is expected to look towards 750 yuan/ton. For coking coal, the investigation of overproduction disrupts supply, while tariffs and policy disturbances affect demand, leading to a tug-of-war between bulls and bears, with coking coal prices fluctuating.

Investment Suggestions

The second quarter simultaneously verifies the bottom of coal prices and performance. The current sector has a high PE and low PB, positioned at a cyclical low, and the upward movement of coal prices may open up rebound space for the sector. Recommended: ① Elastic targets: Yancoal Energy (600188.SH), Jinkong Coal Industry (601001.SH), Shanmei International (600546.SH), Huabei Mining (600985.SH), etc., ② Growth targets: Electric Power Investment Energy (002128.SZ), Huayang Co., Ltd. (600348.SH), XINJI ENERGY (601918.SH), ③ Medium to long-term stable targets: China Shenhua (601088.SH), China Coal Energy (601898.SH), Shaanxi Coal Industry (601225.SH), ④ Leading coal machinery company TDTEC (600582.SH), etc Risk Warning

Economic slowdown overseas; large-scale capacity release; substitution of new energy; impact of safety incidents