Shares in the coal sector are advancing against the broader market's decline. At the time of writing, Yancoal Aus (03668) is up 5.49% to HK$33.64, Yankuang Energy (01171) has gained 4.48% to HK$12.13, China Coal (01898) has risen 3.03% to HK$10.88, and China Shenhua (01088) is up 1.95% to HK$43.98.
The movement follows news that Shanxi province is set to release new regulations, titled "Seventeen New Rules for Coordinating Coal Industry Development and Safety in Shanxi Province." These rules aim to completely eliminate and ban hidden working faces and strictly prohibit coal mining enterprises from using or covertly using underground labor dispatch workers in any form.
Furthermore, the peak summer season for power consumption has commenced following the mid-July start of the traditional "San Fu" hot period, leading to an anticipated improvement in thermal coal demand.
Geopolitical factors are also drawing attention. With the ongoing US-Iran conflict, former US President Trump indicated that the US will soon strike Iranian underground facilities. Simultaneously, the Houthi forces officially announced a maritime blockade against Saudi Arabia on July 20th, raising risks of potential blockades at the Strait of Hormuz and the Bab el-Mandeb Strait.
Analysis from Shanxi Securities suggests that thermal coal prices have entered a reasonable range. With supply being restrained, coal prices are expected to find support during the peak season. As the market transitions from the off-season to the peak summer period, the trading focus for coal stocks may gradually shift from coking coal to thermal coal or integrated coal-power companies.
During the mid-year reporting season, market trading styles tend to emphasize corporate performance. Coal stocks, having undergone adjustments, are seen as having a foundation for recovery.
Separate analysis from Founder Securities posits that the coal and utilities sectors have demonstrated resilience against the market trend, and the ongoing recovery is expected to deepen. It notes that substitute demand for coal is growing, the supply-demand balance for coal is improving, and companies with greater sensitivity to coal price fluctuations are likely to be the first to benefit.
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