Haitong: The coal prices are approaching the lower limit as the off-season is approaching. The support is still there. The supply and demand situation is expected to marginally improve in August and is likely to continue to improve further in September.

Haitong released a research report stating that there was some improvement in demand margins in August, thanks to the conversion of thermal power demand from negative to positive year-on-year, mainly due to relatively high temperatures and hydropower baselines. However, steel and cement may still show significant negative growth due to weak real estate-related economies; supply side has also shown some recovery with a slight increase in daily production. Looking ahead to September, with relatively high temperatures and weakened hydropower output, thermal power demand is expected to remain high, and non-electric demand such as chemical industry may also increase, providing hope for a not-so-weak off-season; supply may maintain current levels, further incremental space is limited, and the supply-demand pattern is expected to continue to improve. The coal price at the port continues to rebound, with short-term small fluctuations likely to be maintained. In terms of production, national coal production in August was 397 million tons, a year-on-year increase of 2.8%, and a month-on-month increase of 1.6%. In terms of demand, in August, thermal power / pig iron / cement production increased by 3.7% / -8.8% / -11.9% year-on-year; the cumulative increase in production from January to August was +1% / -4.3% / -10.7%. According to the National Bureau of Statistics, the industrial value added of enterprises above designated size increased by 4.5% year-on-year in August, with a 0.32% increase month-on-month; from January to August, it increased by 5.8%. Haitong believes that in August, there was some improvement in demand margins, thanks to the conversion of thermal power demand from negative to positive year-on-year, mainly due to relatively high temperatures and hydropower baselines. From the perspective of daily production, the average daily production in August was 12.79 million tons, a year-on-year increase of 3.7% and a month-on-month increase of 1.6%. Looking ahead to September, with relatively high temperatures and weakened hydropower output, thermal power demand is expected to remain high, and non-electric demand such as chemical industry may rise, providing hope for a not-so-weak off-season. Supply is expected to maintain current levels, and further incremental space is limited, with the balance between supply and demand expected to continue to improve. Steel prices have significantly rebounded, and coke has initiated its first round of price increases. In terms of production, national coke production in August was 40.89 million tons, a year-on-year decrease of 2.1% and a month-on-month decrease of 1.6%. From September 6-12, the daily average consumption of coal by coastal and inland power plants in 25 provinces was 6.13 million tons, a 6.3% decrease from the previous week; the average inventory was 117.23 million tons, a 1.9% decrease from the previous week. As of September 14, the inventory in the northern four ports was 15.24 million tons, an increase from the same period in 2023/2022 by 1.56 million tons/1.69 million tons. Haitong believes that with the gradual disappearance of high-temperature weather, daily coal consumption may continue to decline, downstream may begin to actively reduce stocks, and coal prices may enter a small downward trend. However, considering the recovery of non-electric demand such as chemical industry and the significant weakening of hydropower output, combined with the shortage of spot coal resources in ports brought about by inversion, coal prices may fluctuate. It is still necessary to continue monitoring the economic recovery and the actual release of demand, as well as to pay attention to the impact of safety supervision on the production volume of the main producing areas. Investment recommendations: Haitong believes that as the off-season approaches, the downward pressure on coal prices may gradually manifest, but the lower limit support for coal prices is still in place. In the short term, with the expectation of a U.S. interest rate cut and domestic economic pressure, the "steady + dividend" defensive/offensive logic of coal mining is still dominant. In a market environment where risk preference has not significantly improved, the dividend strategy is expected to return. Risk warning: A significant decline in downstream demand, the continuous impact of supply guarantee, price stabilization, and production restriction policies need to be continuously monitored.