Shanxi Securities released a research report highlighting the profit recovery potential in the coal sector. In November, coal prices shifted from an upward to a downward trend. Seasonal price patterns in 2025, 2024, and 2023 have remained consistent, showing "off-season resilience" and "peak-season weakness." After an earlier-than-expected price surge, there is now some mean-reversion pressure. However, demand is expected to hold up in the peak season due to cold waves.
Fourth-quarter earnings are anticipated to improve, and if prices remain elevated long-term, 2026 earnings could see significant recovery. The recent stock price decline enhances dividend value, presenting a buying opportunity on dips. Shanxi Securities' key views are as follows:
**Supply**: From January to November, raw coal supply showed marginal declines. Cumulative output reached 4.402 billion tons, up 1.4% year-on-year, though growth slowed. November output was 427 million tons, down 0.5% YoY but up 4.93% month-on-month.
**Demand**: Terminal demand continued to weaken from January to November, with downstream demand awaiting improvement. Fixed-asset investment fell 2.6% YoY, with manufacturing investment up 1.9%, infrastructure investment down 1.1%, and real estate investment plunging 15.9%. Thermal power output declined 0.7%, while coke production rose 3.2%. Pig iron output dropped 2.3%, and cement production fell 6.9%. In November alone, thermal power output grew 4.2%, coke output rose 2.3%, pig iron output fell 8.7%, and cement output declined 8.2%.
**Imports**: Coal imports in November fell month-on-month, maintaining a contraction trend from January to November. Cumulative imports totaled 432 million tons, down 12.0% YoY. November imports were 44.05 million tons, down 19.88% YoY but up 5.55% month-on-month.
**Prices**: Coal prices in November rose more than expected month-on-month. Despite adjustments in Shanxi premium 5,500 kcal thermal coal, Jingtang Port coking coal, and Tianjin Port secondary metallurgical coke prices earlier in 2025, all three saw month-on-month increases in November. The gains were strongest for thermal coal, followed by coke and coking coal.
**Commentary**: Coal prices turned downward in November after mostly extending October's rally, driven mainly by power plant restocking. Prices retreated in the peak season after restocking was completed. Seasonal trends in 2025 mirrored those of 2024 and 2023, showing "off-season resilience" and "peak-season weakness." The earlier price surge has led to mean-reversion pressure.
The anti-overcapacity policy remains unchanged. The core macroeconomic goal is to reverse deflationary trends, following the chain: "deflation → anti-overcapacity → profit recovery → inflation." Achieving inflation requires reasonable profit margins across sectors. Thus, the policy avoids framing the issue as "overcapacity," instead emphasizing "temporary oversupply awaiting demand recovery." Balanced profits across sectors are crucial for restoring confidence and breaking deflation. For coal, short-term focus is on supply control, while medium-term prospects hinge on demand recovery.
Recent price declines have raised concerns, but given that anti-overcapacity remains a key economic priority, policy direction is unlikely to shift. If prices fall too low, stabilizing measures may be introduced.
**Risks**: Supply contraction falling short of expectations, weaker-than-expected demand recovery, a surge in coal imports, and underperformance by related companies.
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