Shanxi Securities released a research report expressing optimism about investment opportunities in the coal sector for the fourth quarter, with coal-related elastic varieties ranking high. As policies against "internal competition" take effect, domestic coal supply growth is expected to remain limited, providing support for coal prices. With seasonal peak demand in winter, coal prices are expected to rise. Q4 earnings may outperform Q3, making the sector attractive for allocation. If prices remain elevated long-term, earnings in 2026 still have significant recovery potential.
Key insights from Shanxi Securities:
**Supply & Demand Data for October** - **Supply**: Coal production showed marginal declines from January to October. Cumulative raw coal output reached 3.973 billion tons, up 1.5% YoY, but growth slowed. October output was 407 million tons, down 2.3% YoY and 1.16% MoM. - **Demand**: Terminal demand continued to decline, while thermal power demand bucked the trend. Fixed-asset investment fell 1.7% YoY (Jan-Oct), with manufacturing up 2.7%, infrastructure down 0.1%, and real estate down 14.7%. Thermal power output fell 0.4% YoY, while coke rose 3.3%, pig iron fell 1.8%, and cement dropped 6.7%. In October alone, thermal power rose 7.3%, coke grew 1.5%, pig iron fell 7.9%, and cement plunged 15.8%. - **Imports**: Coal imports declined MoM in October, maintaining a contraction trend from January to October. Cumulative imports totaled 388 million tons, down 11.0% YoY. October imports were 41.74 million tons, down 9.76% YoY and 9.27% MoM.
**Price Trends** Coal prices rose more than expected in October. While Shanxi premium 5,500 kcal thermal coal, Jingtang Port coking coal, and Tianjin Port secondary metallurgical coke prices adjusted earlier in 2025, October saw diverging trends. MoM price increases ranked as thermal coal > coking coal > coke.
Post-holiday, coal prices surged unexpectedly due to supply constraints from anti-competition policies, compounded by rainfall in production areas and maintenance on the Daqin Railway. Imports from Mongolia also declined due to political factors. Market concerns over further supply tightening in Q4 persist.
The primary driver of price increases was demand-side factors: 1. Downstream power plants increased procurement, reducing port inventories. 2. Electricity consumption surged, accelerating price gains.
**Outlook for Q4 Coal Prices** If prices rise sharply, policymakers may intervene. The recent rebound was driven by anti-competition policies, including production restrictions and permit expirations. The policy intent is to ensure reasonable profit margins across the supply chain and break the deflationary spiral.
Current price surges reflect tight Q4 supply-demand dynamics. If prices exceed 800 yuan/ton, market expectations may shift due to potential policy responses, such as capacity expansions or supply stabilization measures.
**Risks**: - Supply contraction falling short of expectations. - Demand recovery lagging forecasts. - Surge in coal imports. - Underperformance by related companies.
Comments