Cinda Securities released a research report stating that, based on an analysis of the energy production cycle, the coal sector currently offers strategic mid-to-long-term investment opportunities. With coal PPI at cyclical lows, ample market liquidity, and rising risk premiums, the sector exhibits "anti-involution" characteristics and has yet to fully reflect profit recovery expectations. High-quality coal companies are supported by high dividend safety margins on the downside, while upside potential is driven by subsequent coal price increases and valuation repairs. The firm maintains an "Overweight" rating on the sector. Key insights include:
**Supply Constraints: Coal Output Growth Stabilizes** Since 2025, China's coal supply has entered a low-growth phase, characterized by slow domestic production growth and a sharp contraction in imports. 1) Domestic raw coal output grew steadily at 1.5% YoY in Jan-Oct 2025, though the pace slowed in H2 due to stricter overproduction checks. Regional trends show Shanxi rebounding (+3.9%), Xinjiang slowing (+4.9%), Shaanxi stable (+2.7%), and Inner Mongolia dipping slightly (-1.1%). Imports fell 11% YoY to 388M tons, pressured by narrowing international price advantages and shipping market adjustments. 2) Limited supply increments are expected, with central/eastern regions facing output declines. While coal companies’ capital expenditures rose 28.2% YoY to RMB208.7B in Jan-Sep 2025, investments increasingly shift downstream (e.g., coal power, chemicals), capping new capacity. Projections indicate China’s coal output will plateau above 4.1B tons before 2030, then decline rapidly post-2035 due to resource depletion.
**Demand Resilience: Power and Chemicals Drive Growth** Coal consumption continues to rise, with structural shifts favoring power and chemical sectors. 1) Commercial coal use edged up 0.5% YoY in Jan-Sep 2025. Thermal coal demand held steady at 3.07B tons, while coking coal (+2.2%) and anthracite (+15.3%) rebounded. Power (63.5% share) remains the dominant consumer, but chemicals (8.1%) are the fastest-growing segment. 2) Thermal power’s role as a grid stabilizer amid extreme weather and renewable intermittency underscores its resilience. AI-driven data center power demand is projected to surge, reaching 1.6% of total consumption by 2025. 3) Non-power demand (e.g., chemicals, metallurgy) grew 3.6% YoY, with chemicals (+17.4%) leading. Steel/cement sectors face headwinds from property slowdowns.
**Price Outlook: Policy and Costs Anchor Range** 2025 coal prices traced a "V-shape," with H1 declines reversing in H2 on supply tightening. Average prices for 5,500kcal thermal coal (Qinhuangdao: RMB690/t, -19% YoY) and coking coal (Jingtang Port: RMB1,499/t, -26% YoY) fell but found floors. Policy interventions (e.g., output checks, long-term contract pricing reforms) and rising costs (domestic/international) are expected to sustain prices in a "reasonable range." Cinda forecasts 2026 price floors of RMB730-760/t for thermal coal and RMB1,700-1,800/t for coking coal.
**Valuation: Undervalued with PPI Recovery Potential** Sector valuations remain low (thermal coal PE: 10-15x, PB: 1.0-2.7x; coking coal PE: 17-32x, PB: 0.6-1.0x). Historical PPI upturns (2016, 2021) triggered coal rallies, suggesting current conditions favor re-rating. Cinda recommends: 1) Stable performers: China Shenhua, Shaanxi Coal, China Coal Energy, Tiandi Science; 2) High-value plays: Yankuang Energy, Xinji Energy, SDIC Power, Shenhuo Group, Guanghui Energy; 3) Premium coking coal firms: Shanxi Coking Coal, Pingmei, Lu’an, Panjiang.
**Risks**: Macro slowdown, policy shifts, energy substitution, or steep coal price declines.
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