Orient Securities released a research report stating that following the introduction of the "anti-involution" concept, the coal industry's supply-demand dynamics have reversed, with fundamentals remaining broadly positive. Coal prices are expected to maintain long-term upward momentum, with a projected upward trend in the 2026-2027 price cycle. Capital expenditures in the coal sector are anticipated to decline starting in 2026, with supply-demand conditions likely to be tighter than in 2025. Key insights from Orient Securities include:
**Outlook: 2026 Marks a Bottoming-Out Year for Coal** (1) A full coal industry cycle typically spans 10 years. The previous cycle (2011-2021) saw coal prices exhibit a "high-low-high" pattern. Since peaking in Q4 2021 (marked by the delisting of thermal coal futures), prices have declined for over three years, suggesting 2026 may signal a cyclical rebound. (2) Policy parallels exist between 2026 and 2016. In November 2015, supply-side reforms were introduced, marking the previous cycle’s price bottom. Similarly, the "anti-involution" policy unveiled in July 2025—targeting low-price competition and inefficient capacity exits—may indicate this cycle’s trough. (3) Industry capital expenditures are projected to decline from 2026 onward. Despite stable construction activity since 2021, new investments have not expanded capacity significantly. With falling prices squeezing profits, capex is set to contract.
**Supply-Demand: Constraints Persist in 2026** (1) **Supply**: Eastern China’s output is declining, while Xinjiang’s growth potential is hampered by high transport costs and "anti-involution" curbs on utilization rates, limiting supply expansion. (2) **Demand**: Jan-Sept 2025 property new starts fell 15.0% YoY. If sustained, per capita starts would hit 0.45 sqm—below Japan’s historic lows and nearing U.S. troughs, leaving minimal downside. Meanwhile, post-May 2025 renewable capacity additions slowed under Policy 136, reducing pressure on coal power. (3) **Balance**: The peak supply-demand strain has passed, with 2026 likely tighter than 2025.
**Price Outlook: Volatile Upside in 2026** (1) Thermal coal futures may relaunch in 2026, with preparatory steps initiated by Zhengzhou Commodity Exchange in late 2025. Current port inventories are below year-ago levels, supporting price elasticity. (2) Coking coal’s price ratio to thermal coal (5,500 kcal) is at a historic low of 1.5x vs. a 2x average since 2013. With thinner inventories than thermal coal, coking coal could see sharper price swings.
**Investment Recommendations**: (1) Long-term dividend plays: China Shenhua Energy, China Coal Energy. (2) Price-sensitive beneficiaries: Shaanxi Coal Industry, Jinneng Holding Coal Group.
**Risks**: (1) Weaker-than-expected property data, impacting steel/cement demand. (2) Higher hydropower output displacing thermal generation. (3) Sharp declines in global coal prices boosting imports. (4) Changes to modeling assumptions altering projections.
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