Zhongtai: The weak supply and demand of coal leads to price bottoming out. Seize the opportunity to invest in leading companies.

Zhongtai released a research report stating that it values the allocation value of coal stocks and gradually increases its positions against the trend. 1) Priority on certainty, buying leading white horse companies and integrated assets: Sector rotation embraces certainty, combined with a catalyst of long-term national bond yield decline, undervalued assets with strong dividend attributes and high institutional ownership will still have an advantage. 2) Anticipating first, priority on elasticity, buying coking coal: Fiscal policies continue to strengthen, marginal improvements in real estate and infrastructure, with cyclical expectations catalyzing, improvement in downstream coal demand is on the way. 3) Market value management catalyst, opportunities for stocks trading below book value. Zhongtai's main points are as follows: Industry observation: Strong supply and weak demand contradictions are prominent, coal prices remain weak at low levels. In the current context of continued loose supply and demand dynamics in the coal market, coal prices continue to fluctuate downward. On the demand side, coal demand remains weak mainly due to two factors: 1) Slow progress in resuming work in downstream industries after the holiday. 2) Coal demand has been sluggish due to high temperatures, with daily consumption in downstream power plants at low levels. As of February 27, the total daily consumption of power coal in 25 provinces was 5.371 million tons, down 11.54% from the previous week and 11.11% year-on-year. On the supply side, coal supply has been relatively abundant after the holiday: 1) Some coal enterprises have been actively resuming work and production to seize the opportunity of the post-holiday period. As of February 28, the capacity utilization rate of 462 sample power coal mines has reached 95.6%, up 4.37% year-on-year; 2) Some coal enterprises and large traders have been maintaining normal delivery schedules to fulfill their long-term agreements with users and railway transport plans; 3) The supply of imported coal continues to flow in, squeezing the market share of domestic coal. In the face of the continued weakening of the industry fundamentals, on February 28, the China Coal Industry Association and China Coal Marketing Association issued a initiative to: 1) orderly promote coal production control to maintain production and supply balance; 2) strictly control the import and use of low calorific value inferior coal to maintain the order of coal imports. The current coal price inversion and spot price falling below the upper limit of long-term contract prices may force coal enterprises to initiate price stabilization mechanisms to resist market risks. With the acceleration of downstream enterprises resuming work, adjustments in the breakeven points of coal-fired power companies and slowing pace of coal imports by traders, the loose supply and demand situation in the coal industry may ease as downstream demand improves and supply dynamics adjust, and coal prices are expected to find support at the bottom. Looking ahead, coal stocks still have allocation value 1) Sector rotation, undervalued sectors present allocation opportunities: On one hand, coal long-term contract prices still have strong support, with listed companies with high proportion of long-term contracts having strong earnings resilience; On the other hand, stocks with high volatility at high levels are expected to undergo adjustments, style shifts, and undervalued sectors, due to their stagnant growth, show a significant increase in allocation cost-effectiveness. 2) Market value management, state-owned companies actively practicing responsibility: China Securities Regulatory Commission formally released the "Guidelines for Supervision of Listed Companies No. 10-Market Value Management" on November 15, 2024, requiring major index component stocks to implement market value management system and special requirements for long-term undervalued companies to disclose valuation upgrade plans. Since the fourth quarter of last year, there has been a continuous flow of announcements such as Pingdingshan Tianan Coal Mining repurchasing shares, Huaibei Mining Holdings increasing shareholdings by major shareholders, Shaanxi Coal Industry cash acquisition of group's power assets, Yunnan Yunwei major asset restructuring, China Coal Xinji Energy major shareholders increasing holdings, Jinneng Holding Shanxi Coal Industry acquiring group's Panjiayao mine rights, China Shenhua Energy acquiring group assets, which are expected to continue to boost the company's market value. 3) Counter-cyclical adjustment policies may be increased, expectations for improved new physical demand: Premier Li Keqiang presided over the seventh meeting of the State Council on February 5, mentioning the need to increase counter-cyclical adjustment measures. Focus on prominent issues, integrate resources, and take decisive policy measures to respond to concerns and enhance policy-market interaction. On February 21, Finance Minister Lou Jiwei published an article in People's Daily titled "Implementing a more active fiscal policy to promote sustained recovery and improvement of the economy," emphasizing the need for a more active fiscal policy. Firstly, increase the fiscal deficit ratio, increase expenditure intensity, and accelerate expenditure progress. Secondly, arrange for a larger scale of government bonds to provide more support for stabilizing growth and restructuring. Thirdly, vigorously optimize expenditure structure, strengthen precise allocation, focus on benefiting the lives of the people, promoting consumption, and boosting future growth. Fourthly, continue to prevent and resolve risks in key areas to promote stable fiscal operations and sustainable development. Fifthly, further increase transfers to local governments, enhance local financial resources, and ensure the bottom line of three priorities. In addition, attention should be paid to the upcoming National People's Congress in March for relevant economic stimulus policy updates. Regarding power coal: The price of power-end coal at Jingtang Port fell by 29 yuan/ton on a weekly basis. In terms of supply, as of February 28, 2025, the daily average production of power coal from 462 sample mines was 5.741 million tons, up 0.97% from the previous week and 4.29% year-on-year. In terms of demand, as of February 27, 2025, the total daily consumption of coal in 25 provinces was 5.371 million tons, a decrease of 0.701 million tons from the previous week, down 11.54% on a weekly basis and 11.11% year-on-year. As of February 28, the spot price for power-end coal (Q5500) at Jingtang Port in Shanxi was 695 yuan/ton, a decrease of 29 yuan/ton from the previous week, down 4.01% on a weekly basis, and a decrease of 226 yuan/ton from the same period last year, down 24.54% year-on-year. Regarding coking coal and coke: The main coking coal price at Jingtang Port fell by 40 yuan/ton on a weekly basis. In terms of supply, as of February 28, 2025, the daily production of high-quality coal from 523 sample mines and 110 sample coal-washing plants was 732,100 tons and 530,000 tons respectively, with weekly changes of 1.10% and 6.99% and year-on-year changes of 0.59% and -5.57%. In terms of demand, as of February 28, 2025, the total daily consumption of coal in 247 provinces was 879.5 million tons, down 0.78 million tons from the previous week, down 8.2%, down 10.6%, down 8.6%, down 10.0%, down east week 5.6%, down 5.1%, down 9.8%, down 10.2%, down 8.7%, down 9%, down 4.8%, down 5.8%, down 12.4%, down 13.8%, down 11.2 and 12.6 respectively. Speaking of the same year, Jing Tang Peng coal price was 695 yuan / ton, an increase of 29 yuan per ton from the previous week, an increase of 4.01% week-on-week, compared to the same period last year, 226 yuan per ton, a year-on-year decline. 24.54%.The daily production of molten iron in the steel industry was 2.2794 million tons, up 0.19% on a weekly basis and up 2.28% year-on-year. As of February 28, the ex-warehouse price of main coking coal in Jing Tang Port, Shanxi, was 1390 yuan/ton (including tax), a decrease of 40 yuan/ton compared to last week, a decrease of 2.80% on a weekly basis, and a decrease of 940 yuan/ton compared to the same period last year, a year-on-year decrease of 40.34%.Risk warning: Policy price limit risk; Coal import volume expansion; Significant macroeconomic slowdown; Third-party data credibility risk due to factors such as data acquisition methods and processing methods; Risk of outdated information updates in research reports.