CMSC released a research report maintaining a "recommended" investment rating for the coal sector, citing tightening supply and seasonal demand recovery. Policy measures ensuring supply stability and production quality have supported balanced market operations. Looking ahead, supply-side adjustments and steady thermal coal demand growth are expected to lift coal prices in 2026. Investment opportunities center on dual themes: dividend yields and cyclical upside.
**Policy Support Stabilizes Coal Market** In 2025, China’s coal policies focused on two priorities: securing supply through expanded reserves, infrastructure upgrades, and stricter contract compliance, while promoting industry transformation via coal-power technology advancements and cleaner energy integration. To curb overproduction and price volatility, regulators launched inspections targeting unauthorized capacity expansions in July, effectively restoring market order. These measures bolstered energy security, optimized supply chains, and strengthened profitability, driving coal prices higher in H2 2025.
**Thermal Coal: Supply Constraints Meet Seasonal Demand** Supply growth has slowed amid declining output post-July inspections, year-end mine suspensions, and safety audits. Imports fell ~10% YoY due to policy shifts and weaker cost advantages. Demand rebounded with a 7.3% YoY rise in October thermal power generation, supported by winter heating needs. CMSC expects flat-to-slightly higher annual power demand, with 2026 prices likely to rise YoY on sustained supply discipline and steady consumption.
**Coking Coal: Tight Supply with Cyclical Recovery Potential** Accounting for 20%-25% of coal reserves, coking coal faces rigid domestic supply due to limited new projects. Imports from Australia and the U.S. dropped amid trade barriers, while Mongolian and Russian shipments face logistical bottlenecks. Though near-term demand remains subdued, infrastructure and property sector recovery under China’s growth policies could revive steel production, lifting coking coal consumption. Its market-driven pricing offers higher upside during demand rebounds.
**Dividend and Cycle Themes Offer Long-Term Value** Coal equities historically correlate with price trends. With supply rigidities, stagnant capacity growth, and resilient thermal power demand, the sector benefits from cyclical tailwinds. Near-term, winter demand and anti-overproduction policies may further tighten supply, supporting prices. High-profitability coal firms with strong cash flows and dividends enhance the sector’s appeal as a long-term investment.
**Risks**: Lower-than-expected production/imports, price declines, or demand weakness.
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