Guotai Haitong: Confirmation of the cyclical bottom of the coal sector, multiple factors are resonating for supply and demand reversal.

Guotai Haitong released a research report stating that since the start of the uptrend on September 15th, as of last Friday, coal prices have exceeded 770 yuan/ton. This round of coal price increase has shown an unexpected upward trend, driven by multiple favorable factors. From a short-term perspective, current coal prices are approaching a short-term high point, and after entering the winter season, coal prices may experience a slight decline, but the overall downside is limited. From a long-term perspective, the core reason for the current rise in coal prices is the fundamental reversal of the supply and demand pattern in the coal industry since May. The mid-term upward trend in coal prices will not change. Supply side: Under the influence of anti-"involution," coal supply has contracted significantly, leading the industry. With the intervention of the National Energy Administration in July to combat anti-"involution" in the coal industry, coal production nationwide in July-September declined continuously to 3.8 billion, 3.9 billion, and 4.1 billion tons. Looking ahead to the annual production, it is expected that the national production will experience a slight month-on-month decrease in Q4 due to "overproduction checks," and production is expected to remain at 3.9-4 billion tons per month from October to December, with the annual production at around 4.75 billion tons, a decrease of 300-500 million tons year-on-year. Demand side: The total electricity consumption in the whole society in August-September has returned to a growth rate of 4.6%, which is significantly higher than the 2.5% growth in Q1, and it is expected that the annual growth rate will exceed 5%. As the normal off-peak demand season of September-October approaches, demand has already shown stronger-than-expected performance. After the October holiday, the demand in the East China region remained high, leading to the highest daily consumption level in the past five years, and inventories were lower than the same period in 23-24. Thermal coal: Prices rebound in the off-peak season. As of October 24, 2025, the closing price of Q5500 coal at Huanghua Port in the north was 778 yuan/ton, an increase of 28 yuan/ton (4.7%) from the previous week. On the supply side, domestic supply remains stable, while imports continue to decrease: it is expected that the total domestic supply including imports will remain stable with a downward trend for the whole year; on the demand side, despite the off-peak season, the demand has significantly improved, and Q3 profits are expected to rebound. Coking coal: Futures and spot prices rebound together, and molten iron production is expected to remain strong in the off-peak season. As of October 24, 2025, the main coking coal warehouse mentioned increased by 3% to 1740 yuan/ton from the previous week. The average daily production of molten iron decreased slightly week-on-week, indicating that demand is expected to remain strong in the off-peak season. Industry review: 1) As of October 24, 2025, the price of coking coal at the main warehouse in Jing Tang Port was 1740 yuan/ton (3%), the price of primary coking coal at the port was 1696 yuan/ton (-0.5%), and the total inventory of coking coal at the three ports decreased by 7.7% to 2.62 million tons. The operating rate of coking enterprises with a capacity of over 2 million tons was 79.18% (up 0.08%). 2) The offshore price of Q5500 coal at Newcastle Port in Australia rose by 2 US dollars/ton (2.2%). The cost of Q5500 coal at the Northern Port was 10 yuan/ton lower than that of imported coal from Australia; the landed price of coking coal in Australia was 204 US dollars/ton, a decrease of 2 US dollars/ton (-1.1%) from the previous week. The cost of the main coking coal in Shanxi at Jing Tang Port was 20 yuan/ton higher than that of imported hard coking coal from Australia. Stock recommendation: From a sector perspective, it is still recommended to focus on core dividend stocks such as China Shenhua Energy (601088.SH), Shaanxi Coal Industry (601225.SH), and China Coal Energy (601898.SH); and continue to recommend Yankuang Energy Group (600188.SH) and Jinneng Holding Shanxi Coal Industry (601001.SH). Risk warning: Macroeconomic growth lower than expected; large-scale imports of coal; supply exceeding expectations.