Shanxi Securities Company Limited has released a research report indicating that Q4 performance may surpass that of Q3, suggesting the sector has configuration value. During the peak summer season, coal prices rose beyond expectations; however, after the apparent annulment of long-term contracts, some proportions of long-term contracts have yet to be fulfilled, which could lead to continued sales recovery into Q4. With the implementation of "de-involution" policies, domestic coal supply increase expectations for Q4 remain limited, providing some downward support for coal prices. As we approach the peak winter demand season in Q4, a certain level of demand is anticipated, and prices are expected to recover on a quarter-over-quarter basis. The sector's overall valuation is currently quite low, and recent market style shifts heighten the demand for coal, making it a good candidate for upward adjustments. It is recommended to increase allocations during dips and to selectively choose high-elasticity varieties. Key points from Shanxi Securities include:
Data Breakdown: The trend of shrinking imported coal volumes continues to decelerate, with decreasing import prices. From January to September, the cumulative growth rate achieved -11.1%, indicating that cumulative import volumes are still showing a contraction trend. Even though imported coal has maintained a year-on-year negative growth for seven consecutive months, the decline has been marginally slowing, with a relatively strong month-on-month increase; for instance, in September, imported coal volume declined by 3.34% year-on-year but grew by 7.63% month-on-month. By coal type, only anthracite showed a month-on-month negative growth, while coking coal recorded positive growth year-on-year. The increase in thermal coal mainly comes from Indonesia; coking coal increases are primarily from Russia and Australia; lignite increments mainly come from Indonesia; whereas anthracite decreased predominantly from Russia.
Price Trends: In September, the overall import price for all coal varieties reached $68/ton, maintaining a declining trend year-on-year, but increasing by $2.05/ton month-on-month. Across coal types, import prices have significantly decreased compared to the same period last year; in September, coking coal, anthracite, and lignite import prices all increased on a month-on-month basis.
Domestic Gap Boosts Import Demand: In September, domestic thermal coal prices dipped before rising. Domestic raw coal production continues to contract year-on-year but shows slight month-on-month growth. Nonetheless, the domestic gap continues to invigorate demand for imported coal. Structurally, the recovery trend of imported coal observed since June persisted in September, with only anthracite experiencing a month-on-month decrease. The spread in prices is expected to continue motivating imports, warranting attention to overseas price trends. The trajectory of import prices demonstrates that domestic demand is driving overseas price increases; many coal varieties in September have begun to show month-on-month upward trends.
With the "de-involution" policy continuing to resonate, domestic coal prices surged in October, exceeding market expectations and surpassing the increases in imported coal prices. Therefore, it is anticipated that the price spread between domestic and imported coal will continue to expand, potentially driving an increase in import volumes.
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