Zhongtai Securities released a research report stating that the coal sector may enter a new cycle as trading dynamics and fundamentals align, presenting investment opportunities in 2026. The firm recommends focusing on three key investment themes.
First, given the sustained inflow of long-term capital, coal's "high dividend, low valuation" investment appeal has become more prominent, making high-dividend stocks attractive. Second, companies with capacity expansion potential and strong earnings elasticity are poised to benefit from both alpha and beta opportunities. Third, with coal prices bottoming out and profitability improving, coking coal stocks facing a turnaround are worth monitoring.
**Price Review: Weak Start, Strong Finish** From January to November 2025, coal prices declined year-on-year but rebounded after hitting a low in June, showing a "weak start, strong finish" trend. The average spot price for thermal coal (Q5500) was RMB 695/ton (-19% YoY), while coking coal averaged RMB 1,497/ton (-28% YoY). Long-term contract prices for Qinhuangdao Q5500 stood at RMB 678/ton (-3% YoY), and Henan primary coking coal at RMB 1,546/ton (-27% YoY). As supply-demand dynamics improved in H2 2025, coking coal prices strengthened amid seasonal fluctuations.
**Outlook: Sustainable Supply-Demand Improvement, Rising Price Floor** **Supply Side:** 1. **Tighter Safety Regulations and Capacity Withdrawal** Safety inspections tightened in H2 2025, leading to a noticeable decline in raw coal output. The "anti-overproduction" policy and stricter approvals for capacity expansions have constrained supply since July. Uncertainty remains over whether pre-approved capacity expansions will extend into the 15th Five-Year Plan period. Zhongtai estimates over 100 million tons of pre-approved capacity may exit in 2026, further reducing domestic supply.
2. **Limited Import Growth and Price-Driven Balance** Falling domestic coal prices and Indonesia’s HBA pricing policy widened the import price gap, leading to an 11% YoY drop in coal imports (387.62 million tons from Jan-Oct 2025). With no major policy shifts, imports are expected to remain subdued in 2026.
3. **Logistical Constraints Slow Xinjiang Coal Shipments** Despite efforts to prioritize rail transport and cut costs, Xinjiang’s coal shipments (85.18 million tons via rail, +6.4% YoY) grew at a much slower pace compared to 2024’s 50.5% surge.
**Demand Side: Power Sector Recovery, Non-Power Resilience** Coal demand diverged across sectors in 2025 (Jan-Oct growth: chemicals +10.9% > steel +0.2% > power -1.1% > construction materials -4.9%).
1. **Power: Coal Demand Likely to Rebound in 2026** National power generation rose 2.3% YoY (Jan-Oct 2025), but thermal power fell 0.4%, dragging coal consumption. Assuming 3%+ power output growth in 2026, coal-fired demand could recover.
2. **Steel: Stabilization Policies to Support Demand** The *Steel Industry Stabilization Plan (2025-2026)* targets 4% annual value-added growth. Global trade shifts and domestic infrastructure spending may sustain steel output at 2.4 million tons/day, boosting coal demand.
3. **Chemicals: Coal-to-Chemicals Demand to Grow** High global energy prices and ongoing coal-chemical projects will likely drive further demand growth.
4. **Construction Materials: Impact Easing** Weak but stabilizing property markets and increased infrastructure bond issuance (RMB 3.7 trillion, +2% YoY) suggest reduced drag on coal demand.
**Risks:** Unexpected demand slump, extreme weather, unreliable third-party data, and outdated research information.
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