Industrial: Coal is facing dual challenges of cyclical fluctuations and market adjustments. "Low fluctuation + dividend" targets are becoming safe havens for funds.

Industrial released a research report stating that, under the dual challenges of current industry cycle fluctuations and market adjustments, leading coal companies in the industry have shown stability different from traditional cyclical industries, thanks to advantages such as high proportion of long-term sales contracts, cost control per ton of coal, and corporate governance level. They are actively playing the role of "ballast stone". Against the background of continuous decline in government bond yields, the market is experiencing a transition from "growth premium" to "dividend return" investment paradigm. With the combination of policies such as the "New Nine Measures" and repurchase and loan facilitation, the capital market has significantly increased its focus on shareholder returns. Targets with characteristics of "low volatility + dividends" are becoming safe havens for funds, their composite value is being reevaluated by the market, demand for their allocation is gradually increasing, and long-term premiums are expected to be further explored. It is recommended to choose and allocate companies with stable performance, counter-cyclical ability, and good corporate governance or gradually improving. The main points of Industrial are as follows: Review: Coal prices continue to decline, sector performance, positions, and market performance face new challenges Since the beginning of 2025, the coal industry has experienced a reshaping of the supply and demand structure, and coal prices have entered an accelerated decline phase. The sector fundamentals show three main characteristics: a greater-than-expected downward shift in price center, an expansion of industry losses to 54.8%, and a decrease in mutual fund holdings to 0.67%. As of April 30, the closing price of Qinhuangdao Q5500 power coal has fallen by 14.3% to 660 yuan/ton compared to the beginning of the year, while the price of Jingtanggang prime coking coal has dropped by 8.5% to 1400 yuan/ton. Sector excess returns continue to shrink, falling 12.3 percentage points behind the broader market from the beginning of the year to the end of April. Demand side: Weak electricity marginally drags down thermal coal, infrastructure boosts coking coal demand In the first quarter of 2025, GDP grew by 5.4% year-on-year, providing support for demand bottoming out. 1) Thermal coal demand shows a characteristic of "decreased electricity, increased chemicals". Due to the displacement of clean energy sources, the share of thermal power in 2025Q1 decreased to 67.5%, and from the beginning of the year to the end of April, the daily consumption of power plants in 25 provinces decreased by an average of 4.2% compared to the same period last year, while chemical consumption of coal continued to grow; with the approach of the summer high temperature period, the base effect of hydropower is diminishing, and it is expected that the decline in demand for thermal coal will narrow; non-electricity sectors may improve under the drive of trillion-dollar government bond projects, and the decline in demand for thermal coal throughout the year is expected to narrow, with trends gradually improving. 2) In terms of coking coal, the release of demand for infrastructure steel boosts demand, and the supply-demand situation marginally improves. The steel industry chain is witnessing "infrastructure supplement, real estate decline narrowing," with iron production growing by 1.4%, overall infrastructure investment accelerating to 11.5%, the new contract amount for the four major construction SOEs increasing by 3.7%, and the reduction in the area of new construction/completed real estate narrowing. Coking coal demand is entering a recovery channel, with the expectation that molten iron production for the whole year may grow slightly, and the price center of coking coal is expected to stabilize. Supply side: Major producing regions maintain stable production through pricing, aiming to secure long-term contracts In the first quarter of 2025, the national raw coal output increased by 8.1% year-on-year to 1.203 billion tons, mainly due to the low base effect caused by safety inspections in Shanxi in 2024. If calculated on an annualized basis, the annual output has returned to the normal state of a slight year-on-year increase. The industry is currently adopting a "quantity compensating for price" strategy to cope with market pressure, and is still influenced by the game of "production cuts losses, production increases benefits" in the short term. However, with over half of the industry operating at a loss, tangible and intangible factors are expected to play a role, and the turning point in production growth rate is expected to soon become evident. In terms of coking coal, the ash content of washed clean coal in 2025Q1 decreased to 36.4%. At the same time, the issue of long-term depletion of coking coal resources is becoming more pronounced; on one hand, coal companies are actively participating in mergers and acquisitions of high-quality resources, while on the other hand, the release of this round of resources will take time. The "resource bottleneck + development time difference" will provide supply-side support for prices in the future, strengthening the logic of price support for the production side. Imports: Expectations of reduced imports from three major importing countries, with an upward shift in marginal pricing anchor 1) In February of this year, the Indonesian Ministry of Energy and Mineral Resources required all coal sales to use HBA pricing. As this pricing policy is implemented, the cost of purchasing Indonesian coal is expected to increase. Currently, high-cost mines in Indonesia are facing increasing losses, and exports for the entire year may continue to decline. Meanwhile, the price of imported Indonesian coal is lower than domestic prices, and the import volume of Indonesian coal is expected to be limited for the whole year. 2) Russian coal companies are experiencing worsening losses, combined with unresolved transportation capacity bottlenecks in the Far East, leading to expectations of continued reduction in the import of Russian steam coal; 3) MONGOL MINING is constrained by increased production in Shanxi and high port inventories, with imports expected to decline year-on-year. Risk warning: Significant weakening of the macro economy, sharp decline in coal prices, industry policy control risks, increased safety supervision, accelerated substitution of other energy sources.