Guosen: As the peak demand season for non-electricity needs approaches in September and October, improvements in the coal industry can be expected.

Guosen releases research report stating that the coal industry's negative factors in the second quarter report have been exhausted, and the peak season of strong non-electric demand in September and October is approaching. Expectations of supply contraction still exist, and the bottom of coal prices has been confirmed, with a rebound expected. It is recommended to focus on: 1) Growth targets: Inner Mongolia Dian Tou Energy Corporation (002128.SZ), China Coal Xinji Energy (601918.SH), 2) Medium to Long-Term Stable Targets: China Shenhua Energy (601088.SH,01088), China Coal Energy (601898.SH,01898), Shaanxi Coal Industry (601225.SH), 3) Elastic targets: Jinneng Holding Shanxi Coal Industry (601001.SH), Huaibei Mining Holdings (600985.SH), 4) Coal machinery leader Tiandi Science & Technology (600582.SH), etc. Main points of Guosen are as follows: Coal industry performance summary for Q2 2025: Bottoming out, improvement expected In the second quarter, national raw coal production remained high, with a significant decrease in commercial coal consumption during the off-season by 11.8%. The supply and demand were significantly imbalanced, combined with high social inventories, leading to continued decline in coal prices. Apart from the coking coal sector benefiting from the decline in coke coal prices, coal companies' performance was generally under pressure and at a low point. Looking at different sectors, due to the dual-track pricing system, thermal coal companies had relatively small declines in sales prices and profits. Coal chemical industry block also benefited from the decline in coal prices, but the decline in product sales prices led to a decrease in profitability. On the company level, leading coal companies such as China Shenhua Energy and China Coal Energy maintained relatively stable performance due to high long-term coal contracts and effective cost reductions, demonstrating strong core competitiveness. In the second half of the year, with improving demand and rebounding coal prices, there is hope for an improvement in coal company performance. Supply: Coal production decreased in July, with a slight recovery in imports, and expectations of supply contraction persist Due to factors such as rainfall and production cuts, coal production in the peak season of July significantly decreased; this impact may continue into August, and expectations of tightened supply remain. In July, domestic supply decreased by 40 million tons compared to the previous month, and also decreased by 9 million tons compared to the same period last year. In terms of production areas, all four major production areas saw decreases, with Xinjiang seeing the largest decrease. As of August 24th, cumulative coal production from sample mines in August saw a slight decrease month-on-month. In July, domestic coal prices rose, with imported coal regaining price advantages and increased imports year-on-year. However, the import level remained relatively low compared to previous years. In July, imports of coal and lignite amounted to 35.61 million tons, a decrease of 22.9% year-on-year, and an increase of 7.8% month-on-month. Indonesian coal imports increased significantly, while Russian coal imports decreased. Demand: Significant improvement in power generation demand in the peak season, non-electric demand to pick up in September and October In July, entering the peak season of demand, thermal power generation accelerated, chemical coal maintained strong demand, molten iron production remained relatively high, but cement demand was weak. Overall, coal demand in July improved significantly. Looking ahead to September, although the peak season for summer electricity consumption has ended, the peak season for non-electric consumption in September and October is approaching, combined with winter storage demand afterward, coal demand is still expected to be supported. In July, national commercial coal consumption was 450 million tons, an increase of 1.9% year-on-year and an increase of 12.5% month-on-month. Looking at downstream sectors, demand significantly improved in July, with national electricity consumption exceeding one trillion kilowatt-hours, an 8.6% year-on-year increase and a 3.2 percentage point increase compared to June. Demand for thermal power improved significantly, wind power and hydropower consumption decreased year-on-year, with thermal power increasing by 4.3% year-on-year in July, a 3.2 percentage point increase compared to June. Chemical coal demand remained high. As of August 29th, coal-derived PVC, coal-derived ethylene glycol, and coal-derived methanol production in 2025 increased by 2.8%, 12.4%, and 14.4%, respectively. From January to August, synthetic ammonia production increased by 9.8% year-on-year, with a 14.3% year-on-year increase in August. Steel mill profits remained good, with high production rates, averaging over 2.4 million tons of molten iron production per day; steel exports increased by 25.7% year-on-year. Downstream demand was weak, with cement production in July declining by 5.6% year-on-year, continuing to decline. Inventory: Inventories at all levels decreased, with port inventories lower than the same period last year Inventories at all levels decreased, with port inventories lower than the same period last year. The low port inventories may provide support for coal prices, and future inventory recovery should be monitored. Mainstream port inventories decreased significantly, 6.3% lower than the same period last year; coal sales improved, with a monthly decrease of 8.63% in inventories at key state-owned coal mines in six major regions in July, but an increase of 15.04% year-on-year; power plant inventories were slightly higher than the same period last year. Molten iron production remained high, with good downstream demand, while coking coal inventories were significantly higher than the same period last year and port inventories fluctuated downward. Prices: Expect coal prices to rebound as supply contraction expectations & support from non-coal demand in September and October In terms of thermal coal, due to high demand in the peak season and the impact of production cuts and frequent heavy rainfall, coal prices rebounded close to 100 yuan/ton, exceeding expectations. As daily consumption decreased, coal prices fell from their peak, but with the support of the peak season for non-electric demand in September and October, the downside of this round of decline is expected to be limited. For coking coal, with the peak season approaching, factors to monitor include domestic production cuts, the clearance of Mongolian coal, and the resumption of downstream production after significant events; coal prices are expected to remain volatile. Risk warning: Overseas economic slowdown; Large-scale release of production capacity; Replacement of new energy sources; Impact of safety accidents.