GF SEC: Coal prices are stable with an upward trend, and the electricity generation in August increased by 3.7% year-on-year. Demand in the non-electricity peak season is expected to improve.

GF Securities released a research report believing that the recent thermal coal prices have continued to rise slightly, and the coking coal market sentiment is improving. In terms of thermal coal, the latest price for CCI5500 kilocalorie coal on September 13th was 857 yuan/ton, with a weekly increase of 12 yuan/ton. Medium-term coal price support mainly comes from relatively steady demand from September to December, no clear positive growth in domestic supply, and continuous decline in inventory. Earlier, coking coal prices were weak due to terminal demand, but as the consumption peak season in mid to late September approaches, the pessimistic sentiment has significantly improved, and it is expected that coking coal prices may rebound. Overall, coal prices are expected to stabilize and slightly rise, considering the pressure from short-term macro demand but also taking into account decreasing inventories at all levels, seasonal increase in non-electric demand, and supply-side constraints. Recent market dynamics: Thermal coal prices continued to rise slightly, and the coking coal market sentiment is improving. According to Fenwei Energy, the latest price for CCI5500 kilocalorie coal on September 13th was 857 yuan/ton, with a weekly increase of 12 yuan/ton. The annual long-term contract price for 5500 kilocalorie coal at ports in September was 697 yuan/ton, with a monthly decrease of 2 yuan/ton. Domestic coal prices continued to rise slightly this week as the peak season comes to an end, but the persistent high temperatures in the south, along with relatively high daily coal consumption by power plants (3.7% year-on-year increase in August thermal power generation, with daily consumption growth rates of 8.9% and 17.7% in the eight coastal provinces in August and since September), tight supply of premium spot resources at ports, and improved downstream procurement sentiment. After previous stock consumption by traders and power plants, non-electric demand and winter inventory replenishment demand may steadily increase, and coal prices are expected to maintain a stable and slightly upward trend. Medium-term coal price support mainly comes from: (1) relatively steady demand from September to December; (2) no clear positive growth in domestic supply; (3) continuous decline in inventory. Regarding coking coal, domestic port and producer coking coal prices remained relatively stable this week, with the price at Jing Tang Port staying at 1770 yuan/ton. On the demand side, downstream companies have maintained a strategy of low inventory during the off-season, but with the arrival of the peak production season, demand is expected to improve, leading to the start of the first round of price hikes by coking enterprises before the upcoming holiday. On the supply side, accidents at coking coal mines have affected production recovery since August, with a 1.3% year-on-year decline in production at key coking coal enterprises through mid-August, and noticeable reductions in coking coal mine inventories in the past two weeks. In summary, earlier coking coal prices were weak due to terminal demand, but as mid to late September approaches the consumption peak season, the pessimistic sentiment has significantly improved this week, and it is expected that coking coal prices may rebound. Key concerns in the near future: (1) Domestic supply and demand: Domestic production slightly recovered in August, while imports decreased, August thermal power generation increased by 3.7% year-on-year, and non-electric demand from industries like steel and construction materials remained weak; (2) International supply and demand: According to AXS Marine, coal trade by sea grew by 1.8% year-on-year in the first seven months, with supply increasing mainly from India, Indonesia, and Mongolia, and a noticeable improvement in demand from Japan and South Korea in July. Industry views: Recently, coal prices have overall stabilized and risen slightly, although there is still pressure from short-term macro demand. Considering decreasing inventory at all levels, seasonal increase in non-electric demand, and supply-side constraints, it is expected that coal prices will stabilize and rise slightly. In the second quarter, the overall net profit of the coal mining sector decreased slightly by 6%, but it performed relatively steadily against the backdrop of declining coal prices. According to Wind's consensus forecast, as of September 6th, the average Earnings Per Share (EPS) for 2024 of 17 key coal companies reached 5% and above, with companies like Shaanxi Coal Industry, China Coal Energy, Shanghai Datun Energy Resources, and Jizhong Energy Resources starting to distribute midterm dividends, indicating significant advantages in valuation and dividends for the sector. Key company recommendations: (1) Solid profit and high dividend-paying thermal coal companies: China Shenhua Energy (601088.SH, 01088), Shaanxi Coal Industry (601225.SH); (2) Companies with low valuation and long-term growth potential: China Coal Energy (601898.SH, 01898), Yankuang Energy Group (600188.SH, 01171); (3) Companies expected to benefit from improved demand expectations and production recovery in the medium term: Huaibei Mining Holdings (600985.SH), Pingdingshan Tianan Coal Mining (601666.SH), Shanxi Coking Coal Energy Group (000983.SZ), Shanxi Coal International Energy Group (600546.SH), Shanxi Lu'an Environmental Energy Development Co., Ltd (601699.SH), Shanxi Hua Yang Group New Energy (600348.SH), SHOUGANG RES (00639). Risk factors: Expectations for slow downstream demand growth, rapid growth in coal imports, acceleration of deterioration in the supply-demand relationship, leading to coal prices falling more than expected.