Huayuan Securities: Coal prices fall more than expected, IEA predicts tight supply and demand balance for natural gas in 2025.

released a research report stating that since the end of 2024, due to the general lower-than-expected results of the 2025 long-term electricity trading, the market has begun to question the investment value of thermal power, as the overall stock prices of the thermal power sector are at a low level. With the unexpected drop in coal prices, there may be a buying opportunity for thermal power. In terms of natural gas, the International Energy Agency (IEA) recently released a report on global natural gas in the first quarter of 2025, predicting that global natural gas will be in a fragile balance in 2025, mainly due to the slowdown in the growth rate of global liquefied natural gas production capacity and increasing demand. The IEA predicts that global natural gas consumption will increase by 1.9% year-on-year, reaching 4.292 trillion cubic meters; production will reach 4.281 trillion cubic meters, an increase of 2.17% year-on-year, still in a fragile balance overall. The main points of view of Huayuan Securities are as follows: Electricity: Thermal power may have a buying opportunity due to the unexpected drop in coal prices Since the beginning of the year, the price of thermal coal has dropped unexpectedly, with the price of Qinhuangdao 5500 kcal thermal coal falling below 720 yuan. The price of thermal coal in China began to decline in mid-November 2024, with an accelerating trend from the end of the year to the beginning of this year. On February 21, 2025, the closing price of Qinhuangdao Port's 5500 kcal thermal coal reached 719 yuan/ton, compared to 939 yuan/ton during the same period in 2024, a year-on-year decrease of 23.4%, a decrease of 220 yuan/ton, significantly exceeding market expectations. It is qualitatively analyzed that the downstream demand for coal is significantly lower than expected. Looking at the inventory of mainstream ports in the North, as of February 17, 2025, compared to the same period in 2024, the inventory increased by 42%, reaching a historical high point in recent years, and even close to the peak summer levels of previous years. It is estimated that the increase in new energy added in 2024 will have a certain impact on the demand for coal for power generation. The non-electricity demand may be related to factors such as the lagging impact of real estate new construction. The future trend of coal prices depends on the incremental policies after the two sessions. By the end of 2024, China completed a large number of new energy installations, with wind power adding 79.82 million kilowatts of installed capacity for the whole year, and photovoltaic adding 2.78 billion kilowatts of installed capacity, corresponding to a power generation of about 500 billion kilowatt-hours. However, in terms of electricity consumption, China's total social electricity consumption in 2024 was 9.8521 trillion kilowatt-hours, an increase of 6.8% year-on-year. Assuming a growth rate of 5% for the total social electricity consumption in 2025, the annual increase in electricity consumption will also be in the order of 500 billion kilowatt-hours, equivalent to the newly added renewable energy power generation. Considering that the coal production growth rates in major coal-producing regions such as Shanxi, Shaanxi, and Inner Mongolia are relatively limited, even though the new energy installed capacity may have a certain impact on the demand for coal for power generation, we expect it to be relatively limited, and the demand for coal for power generation still remains resilient. Therefore, it is inferred that the main reason for the unexpected drop in coal prices may be the lower-than-expected demand for non-electricity. Looking at the year-on-year growth rate of the area of new real estate construction, there was another 23% decrease in 2024 from a low base, with the absolute area of new construction in 2024 being 739 million square meters, only about one-third of 2020. It is expected that before the debt issues of local governments and real estate companies are fully resolved, it will take some time for the stabilization of real estate construction, and there may be an inertia downward trend at the beginning of 2025, which will affect the non-electric demand for coal. Therefore, looking ahead, it is expected that from late February to March, the rise in temperatures will lead to reduced coal demand for heating purposes, while the non-electric demand will gradually increase after the Lantern Festival, and there is some uncertainty in the resumption of work. Coal prices may continue to be weak in the short term. However, looking at the longer-term trend, as the supply side of coal is relatively rigid, the demand side is still the main factor to watch, and attention should be paid to the incremental policies after the two sessions. From an investment perspective, with the unexpected drop in coal prices, thermal power may have a buying opportunity. Since the end of 2024, as the results of the 2025 long-term electricity trading have been generally lower than expected, the market has begun to question the investment value of thermal power, as the overall stock prices of the thermal power sector are at a low level. With the unexpected drop in coal prices, there may be a buying opportunity for thermal power. It is recommended to consider investing in Huadian Power International Corporation (600027.SH), Shenergy (600642.SH) with a relatively high comprehensive quality in the A-share market, Anhui Wenergy (000543.SZ), and the Hong Kong stock CHINA RES POWER (00836). Gas: IEA predicts a tight balance between supply and demand for natural gas in 2025 Recently, the International Energy Agency (IEA) released a report on global natural gas in the first quarter of 2025, predicting that global natural gas will be in a fragile balance in 2025, mainly due to the slowdown in the growth rate of global liquefied natural gas production capacity and increasing demand. Specifically, in 2024, global natural gas consumption increased by 115 billion cubic meters, an increase of 2.8% year-on-year, exceeding the average annual growth rate of 2% between 2010 and 2020, with the growth driven mainly by the Asia-Pacific region (45% of global increment). However, looking at the supply side, global liquefied natural gas production capacity only increased by 2.5%, lower than the average growth rate of 8% from 2016 to 2020. Reasons for this include project delays and inadequate supply of raw materials in some countries (Angola, Egypt, Trinidad and Tobago). Looking ahead to 2025, the IEA predicts that global natural gas consumption will increase by 1.9% year-on-year, reaching 4.292 trillion cubic meters; production will reach 4.281 trillion cubic meters, an increase of 2.17% year-on-year, still in a fragile balance overall. Key variables include: 1) a 5% increase in liquefied production capacity driven by North America; 2) Russia announced that it will stop supplying gas to Europe via the Ukrainian pipeline after December 2024, which is expected to reduce the gas volume supplied by Russia to Europe by about 15 billion cubic meters. Considering the potential demand for replenishing European natural gas inventories due to the decrease in European natural gas inventories in early 2025, or the potential increase in LNG imports to Europe, which may tighten the global natural gas balance. Considering that liquefied production capacity has a significant impact on the global supply balance, summarizing the situation of global liquefaction projects currently operational and under construction: the total operational liquefaction capacity is about 472 million tons per year; the capacity of projects under construction from 2024 to 2028 is about 193 million tons per year. Risk warning: Electricity consumption growth is lower than expected, coal imports exceed expectations, and natural gas price fluctuations are higher than expected.