Citigroup: Demand for thermal coal is approaching a peak, and coal prices are expected to fall in the next two years.

Citigroup's research report predicts that with the demand for thermal coal approaching its peak, the growth in demand will slow down this year. Currently, coal mine inventories have reached multi-year highs, and it is expected that coal prices will decrease this year and next. Without supply restrictions, spot coal prices may fall to the level of long-term benchmark contract prices. Citigroup forecasts that the average price of 5500 coal at Qinhuangdao Port will decrease to 760 yuan and 700 yuan per ton in the next two years, representing a year-on-year decrease of 11.2% and 7.9% respectively. In this context, the bank maintains a "buy" rating on China Shenhua Energy (01088) H shares, but has revised the target price from 41.4 Hong Kong dollars to 32.7 Hong Kong dollars, as the dividend yield remains attractive. Based on expectations of lower coal prices and net profits, the rating for China Coal Energy (01898) H shares has been downgraded from "buy" to "neutral", with the target price lowered from 10.7 Hong Kong dollars to 8.3 Hong Kong dollars. Although the profit margins of the coal sub-sector remain strong, it is still the least favored sub-area in the materials industry by the bank. Citigroup has also initiated two pairs of trades: the first pair is CHINAHONGQIAO (01378) (buy)/China Coal Energy (sell). The second pair is Anhui Conch Cement (600585.SH) (buy)/China Shenhua Energy (601088.SH) (sell).