Huayuan Securities: "Checking Overproduction" Improves Supply and Demand, Coal Price Rebound May Assist in QoQ Growth of Coal Enterprises' Performance in Q3 2025

According to the Zhitong Finance APP, Huayuan Securities released a research report stating that the industry has recently launched an anti-involution initiative through "checking overproduction." The effects of this supply-side policy have been significant, and against the backdrop of coal demand being influenced by the macro environment and the trend of new energy substitution, the turning point contraction effect formed by the policy on the supply side may be a key variable and long-term positive factor for stabilizing and increasing coal prices. Regarding coal prices, some long-term contract coal enterprises that have reduced their fulfillment prices in Q2 are expected to maintain stable prices or slightly rebound in Q3, thus the prices of long-term contract coal businesses on the enterprise side are also expected to achieve a slight rebound in Q3. From the profitability level of coking coal enterprises, combined with the market price trading of blown coal, it is expected to drive a good quarter-on-quarter improvement in the performance of related blown coal enterprises in Q3.

The main viewpoints of Huayuan Securities are as follows:

The effect of "checking overproduction" is significant in Q3 2025, and supply contraction helps coal prices rebound.

On July 10, 2025, the Comprehensive Department of the National Energy Administration issued a notice on "organizing the verification of coal mine production conditions to promote stable and orderly coal supply," launching an anti-involution initiative in the coal sector through "checking overproduction." The effects of this supply-side policy have been significant, with domestic raw coal production in July and August 2025 showing a year-on-year decline of -3.8% and -3.2%, respectively. The balance of coal supply and demand has significantly improved, with the cumulative surplus from January to June dropping rapidly from 96.29 million tons to 14.96 million tons from January to August. The closing price of Qinhuangdao 5500 kcal thermal coal rose from RMB 621/ton on June 30, 2025, to RMB 699/ton on September 30, 2025, with a cumulative increase of 12.6% in the third quarter. Against the backdrop of coal demand being influenced by the macro environment and the trend of new energy substitution, the turning point contraction effect formed by the policy on the supply side may be a key variable and long-term positive factor for stabilizing and increasing coal prices.

The rebound in coal prices is the main positive variable for Q3 2025 performance.

The average market price of thermal coal has increased month-on-month, with the average closing price of Qinhuangdao 5500 kcal thermal coal reported at RMB 672/ton in Q3 2025, up 6.5% month-on-month; the long-term contract price of thermal coal reflects a lag, with a month-on-month decline in Q3, and the average long-term contract price of Qinhuangdao 5500 kcal thermal coal reported at RMB 669/ton, down 0.7% month-on-month. From the profitability level of thermal coal enterprises, those with a higher proportion of market coal have greater performance elasticity. In addition, although the long-term contract coal prices at the port have slightly declined, there may not be any actual negative impact, mainly because the fulfillment rate of long-term contract coal generally rises with the increase in market coal prices. Some long-term contract coal enterprises that have reduced their fulfillment prices in Q2 are expected to maintain stable prices or slightly rebound in Q3, thus the prices of long-term contract coal businesses on the enterprise side are also expected to achieve a slight rebound in Q3.

The market price of coking coal has significantly increased month-on-month, with the average price of main coking coal at Jing Tang Port reported at RMB 1562/ton in Q3 2025, up 18.8% month-on-month; the long-term contract price of coking coal remains relatively stable, with narrow fluctuations month-on-month, and the long-term contract prices of main coking coal from different production areas show mixed trends. From the profitability level of coking coal enterprises, since most main coking coal is sold at long-term contract prices, the performance in Q3 2025 is expected to remain flat or slightly increase, while the price of blown coal in the Changzhi area has increased by 9.3% month-on-month in Q3 2025. Combined with the market price trading of blown coal, it is expected to drive a good quarter-on-quarter improvement in the performance of related blown coal enterprises in Q3 Slight Decline in Production with Limited Impact

From the overall production perspective, most listed coal companies' commodity coal output falls within the approved capacity requirements. Even if there is a slight overproduction, the proportion is relatively small. However, this time the "overproduction check" strictly requires that the annual output cannot exceed the approved capacity, with the verification scope being raw coal production, and it is implemented at specific coal mines, leading to a certain degree of impact on the output of listed companies. Based on the currently announced monthly operating data, the self-produced coal sales of leading listed coal companies are expected to remain flat or decline by less than 5% month-on-month, while the month-on-month decline in self-produced coal sales of small and medium-sized coal companies, which are relatively volatile, is also within 10%. Considering the significant rebound in coal prices from the low levels in Q2, resulting in a noticeable recovery in unit gross profit, the actual impact of production on performance may be relatively limited.

Cost Control Remains the Main Theme, but Further Cost Reduction Space May Be Limited

In H1 2025, coal prices continued to decline, and coal companies' operating strategies transitioned from compensating for price with volume in Q1 to cost control in Q2. Against the backdrop of high inventory and weak demand, cost control has become key for the industry to withstand the price downturn. The extreme coal prices in Q2 also led to a significant month-on-month decrease in costs for coal companies, including reductions in labor costs, material expenses, and safety production cost provisions. As coal prices rebound in Q3 on the supply side and profitability improves, it is expected that coal companies will not further reduce costs, and the costs of listed coal companies in Q3 are expected to remain flat compared to Q2 or slightly increase following coal prices.

Q3 2025 is a Rare Period of Stabilization and Rebound in Coal Prices Performance

Since 2023, coal prices have shown a quarterly step-down trend. Q3 2025 is one of the few periods, aside from Q4 2023, where the average coal price is expected to rebound month-on-month (based on the Qinhuangdao 5500 kcal thermal coal closing price) during the earnings report season. Referring to the coal sector's performance in 2023, which saw a cross-year rally supported by rising coal prices, it is anticipated that the coal sector is likely to experience a positive trend after the Q3 2025 earnings report season.

Tight Supply and Increased Demand, Winter Coal Prices Expected to Remain Strong

September each year marks the off-season for coal demand following the peak summer demand. However, in September 2025, in addition to the traditional off-season factors, hydropower generation significantly exceeds that of the same period in 2024, with the hydropower generation in 25 provinces showing year-on-year increases of +10.3%/+14.5%/+20.9%, squeezing thermal power demand, which saw year-on-year declines of -5.8%/-8.4%/-7.6%. However, under the even weaker off-season circumstances, benefiting from the contraction on the supply side, the average price of Qinhuangdao 5500 kcal thermal coal in September still slightly increased by 0.1% month-on-month. Considering the seasonal weakness of hydropower in Q4 and the strong demand for winter heating coal, coupled with the stable policy strength of the anti-involution "overproduction check" policy on the supply side, coal supply and demand may further tighten, and winter coal prices are expected to remain strong.

Target Aspects

It is recommended to actively pay attention to (1) stable leading thermal coal targets: China Shenhua Energy (601088.SH), China Coal Energy (601898.SH), Shaanxi Coal and Chemical Industry (601225.SH); (2) high-elasticity coal targets: Yanzhou Coal Mining Company (600188.SH), Jinkong Coal Industry (601001.SH), Lu'an EED (601699.SH), Shanxi Coal International (600546.SH); (3) quality coking coal targets: Huaibei Mining (600985.SH), Pingmei Coal (601666.SH), Shanxi Coking Coal (000983.SZ) Risk Warning

The sustainability of supply-side policies is not as expected, winter heating demand is below expectations, and the pace of new energy substitution exceeds expectations