Cold wave triggers "black gold" market ahead of schedule, and it is the right time to reassess the value of the coal sector.

Recently, many northern regions have experienced a "cliff-like" drop in temperature. For example, in Mohe, Heilongjiang, the morning temperature dropped to -25C on October 25, setting a new record for the lowest temperature in late October in the area. Parts of Hulunbuir, Inner Mongolia, dropped below -30C, marking the coldest period in nearly a decade. Areas like Heihe and Mohe in Heilongjiang have accumulated snow depths exceeding 30 cm, with some sites approaching or exceeding 50 cm, setting new historical records for observations. With the cold wave approaching, cities like Zhangjiakou and Daqing have started heating in advance, marking the official start of the peak season for coal consumption. On the demand side, the peak season for coal demand is approaching, with steel mills and thermal power plants maintaining high demand levels. Multiple factors are driving coal prices up. On the supply side, the "anti-overwork" policy continues, coupled with the upcoming safety production inspection which may lead to rectification of safety hazards such as excessive coal production, further reinforcing the expectation of supply contraction and pushing coal prices to stabilize and rise. In the market, funds are moving in response to the situation. Since October, the Futu Coal Index has risen by 11.19%, while the Shenwan Coal Index has surged by 16% at one point. In October, over 2 billion yuan of northbound funds flowed into coal stocks, making coal one of the hottest sectors in the secondary market. Looking back at the first half of 2025, the coal market had an overall loose supply with insufficient demand support, leading to a downward fluctuation in coal prices. However, at the current point in time, with the resonance of the peak season demand and supply side policy constraints, the transformation of the supply-demand landscape may become a crucial opportunity to push the coal sector out of the trough and bring about valuation recovery. Coal companies' fundamentals in Q3 have shown improvement compared to the previous quarter. In the third quarter of 2025, top coal companies have seen improvements in key indicators, indicating a turnaround in the industry's fundamentals. For example, China Shenhua Energy's third quarter revenue dropped by 12.56% year-on-year, but the quarterly revenue decline has significantly narrowed compared to the cumulative 16.05% decline in the first half of the year, showing effective relief of operational pressure. Similarly, China Coal Energy's net profit attributable to shareholders in the third quarter decreased slightly by 1.0% year-on-year but significantly rebounded by 28.3% quarterly, showing strong momentum. With effective cost control, both companies have demonstrated operational resilience in a challenging market environment. The positive signs in Q3 financial reports suggest that the market is warming up, providing a fundamental basis for the sector's valuation recovery. The continuously implemented "anti-overwork" policy and tightening supply are driving coal prices up. Data shows that the overproduction investigation policy has significantly improved the supply-demand balance in the coal industry. In July-August 2025, domestic raw coal production decreased year-on-year by 3.8% and 3.2%, leading to a rapid reduction in the supply-demand surplus from 96.29 million tons in the first six months to 14.96 million tons in the first eight months of the year. As supply tightens, coal prices are rising. The closing price of 5500 kcal power coal at Qinhuangdao rose from 621 yuan/ton on June 30, 2025, to 699 yuan/ton on September 30, 2025, with a cumulative increase of 12.6% in the third quarter. Although the overall coal production has decreased, the impact on top listed coal companies is relatively limited, with most companies maintaining minor fluctuations in coal production. China Shenhua Energy's third-quarter coal production increased by 2.3% year-on-year and 3.1% quarter-on-quarter, while coal sales decreased by 3.5% year-on-year but increased by 5.7% quarter-on-quarter, indicating a turnaround in coal production since June. Yankuang Energy Group also showed stable growth in coal production. In the third quarter of 2025, Yankuang Energy Group's coal production increased by 4.92% year-on-year. Through cracking down on "internal competition", the domestic coal supply is expected to become more rational. With the industry transitioning from "scale expansion" to "quality improvement", the value of high-quality production capacity will be further highlighted. With a tightening supply trend and the seasonal boost in demand, the coal industry is experiencing seasonal favorability. As northern regions start heating in early October and expand heating areas in the later part of the month, the demand for coal for heating purposes is expected to steadily increase. Moreover, the prediction of La Nia conditions in the Pacific Ocean during the autumn and winter seasons could lead to a colder winter in China, supporting the procurement sentiment for thermal coal. In conclusion, the coal sector, with its cyclical resilience and high dividend advantages, is currently demonstrating unique investment attractiveness. Despite long-term challenges such as macroeconomic conditions and the shift to new energy sources, the current industry recovery trend suggests that the coal sector may witness a period of value reassessment and significant potential for investors.