According to a research report from Gf Securities Co.,Ltd. (ASX: 000776), coal prices have continued their upward trend from the second half of 2025 into 2026, with a recent slight pullback influenced by easing geopolitical tensions and increased rainfall. In the short term, both oil prices and the coal-to-oil price ratio have returned to pre-conflict levels, suggesting coal prices are expected to gradually stabilize.
Looking ahead, as the rainy season concludes and power plants enter their peak consumption period with relatively low inventory levels, coupled with a steady-to-declining supply from both domestic and international sources, coal prices are likely to face upward pressure rather than decline. Over the medium to long term, the resilience of coal demand is anticipated to strengthen further, while supply growth remains challenging, leading to an overall tight supply-demand balance.
Currently, leading companies in the sector generally maintain dividend yields above 4%. The firm expresses optimism regarding the sector's valuation, dividend advantages, and potential for upward profit elasticity. The key viewpoints from Gf Securities Co.,Ltd. (ASX: 01776) are outlined below.
Coal Industry Review for 2026: A New Cycle Begins with Supply-Demand Dynamics Exceeding Expectations
The coal industry experienced a significant upturn in sentiment during the first half of the year, characterized by persistently tight supply and demand. The average market price for thermal coal in H1 reached approximately 770 yuan per ton, substantially surpassing expectations.
Coal prices entered a new cycle in 2026, with the first-half performance being the strongest in a decade. Specifically, thermal coal and coking coal prices rose by 10% and 17%, respectively.
Despite the robust fundamentals, the performance of the coal sector in the stock market has been relatively weak.
Supply-Demand Dynamics Exceed Expectations, with Positive Sentiment Likely to Persist in H2
Looking at imports for the second half, uncertainty remains regarding Indonesia's policies, and supply from other major producing countries is unlikely to increase significantly. Consequently, the import price differential and import volumes are expected to remain at historically low levels.
Domestic production in H2 is also not anticipated to see substantial growth due to intensified control measures in Xinjiang and the impact of mining accidents in Shanxi.
Coal demand shows a structurally positive trend, with resilience in demand from the power and chemical sectors.
Medium-Term Supply Perspective: Slowing Growth in New Capacity, Decline in Existing Mines
Domestic production is expected to stabilize or contract slightly, with reductions primarily coming from Shanxi and Xinjiang.
As pressure to ensure supply eases and compliance requirements for safety and environmental regulations increase, some capacities with incomplete procedures face potential reductions. Furthermore, the potential for output increases from existing operating mines is limited. The growth rate during the "15th Five-Year Plan" period is projected to narrow to a range of 0.5% to 1.0%.
In the long run, supply constraints are likely to persist, with pressures related to resource and capacity succession potentially outweighing concerns on the demand side.
Medium to Long-Term Demand Perspective: Resilient Power Demand, Growth Potential in Chemicals
Electricity consumption continues to exceed expectations, driven by AI development and electrification. Growth in electricity usage during the "15th Five-Year Plan" period is expected to reach around 5%. Key marginal contributors to this growth include the information transmission, software, IT services, and electric vehicle charging/swapping service sectors.
Pressure on integrating new energy sources into the grid is becoming more apparent, which is expected to lead to a recovery in the proportion of new electricity generation from thermal power.
During the "15th Five-Year Plan" period, coal demand for thermal power and the chemical sector is forecast to maintain resilient growth. Coal-fired power demand is expected to sustain resilient growth of approximately 2%, while coal consumption in the chemical sector is projected to maintain a compound annual growth rate above 5%.
Post US-Iran Conflict, Overseas Coal Market Expected to Remain Tightly Balanced
During the recent market cycle, the overall increase in coal prices has been relatively moderate, with only slight divergence between different coal types. Furthermore, the subsequent price correction has been far less severe compared to crude oil and natural gas.
The International Energy Agency (IEA) forecasts a slight decline in global coal demand over the next five years, but the decrease in supply is expected to be even greater.
Overseas coal production costs have been rising steadily with inflation in recent years. Countries like Indonesia, Colombia, and Russia have seen significant cost increases over the past three years.
Risk Factors to Consider
Potential risks include a downturn in downstream demand, unexpected growth in production and import volumes, and a substantial increase in costs.
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