Zhongtai: The trading and fundamental aspects are resonating, optimistic about the investment opportunities in the coal sector in 2026.

Zhongtai released a research report stating that there is resonance between trading and fundamentals, and coal may usher in a new cycle. They are optimistic about the investment opportunities in the coal sector in 2026 and suggest focusing on three main themes for investment. Based on the continuous inflow of medium and long-term funds into the market, the investment value of coal with "high dividends and low valuation" is further highlighted, actively allocating targets with strong dividend attributes; Based on the logic of enterprise capacity growth and significant profit elasticity, the focus is on the potential benefits of targets resonating with and ; Based on the bottoming out of coal prices and improved profitability, the focus is on coking coal with potential benefits from a turnaround in difficulties. Zhongtai's main points are as follows: Price review: From low to high, oscillating and strengthening. From January to November 2025, coal prices saw a significant year-on-year decline, but after bottoming out in June, they began to rise, showing an overall trend of low to high. Spot prices: The central price of thermal coal (Q5500) is 695 yuan/ton, a year-on-year decrease of 19%; The central price of coking coal is 1497 yuan/ton, a year-on-year decrease of 28%. Long-term contract prices: Qinhuangdao Q5500 price is 678 yuan/ton, a year-on-year decrease of 3%; Henan main coking coal price is 1546 yuan/ton, a year-on-year decrease of 27%. With the marginal improvement in supply and demand in the second half of 2025, coking coal prices oscillated and strengthened in seasonal fluctuations. Market outlook: Sustainable improvement in supply and demand, central prices will rise. Supply side: "Pre-approval of production capacity" exits, strengthening of supply contraction expectations. 1) Normalization of safety production and weakening of supply due to capacity exits. Safety production supervision in 2025 became stricter after being relatively loose, with the national raw coal production scale showing stability with some increase but a significant decrease in the second half of the year. "Anti-inner loop" policy and "excessive production inspection" drove industry production self-discipline, leading to a significant contraction in raw coal supply starting in July. The uncertainty remains as to whether the pre-approved production capacity policy can continue into the "14th Five-Year Plan," with coal mine approval procedures becoming a reality that enterprises have to face. The bank believes that by 2026, the scale of pre-approved exiting of production capacity may exceed one billion tons, driving a contraction in domestic supply. 2) Limited increase in coal imports and dynamic balance of prices. With domestic coal prices declining and the disturbance from pricing policies of Indonesian HBA, the price difference between domestic and imported coal widened. The certainty of the scale of imported coal decreased in 2025 (total national coal imports from January to October were 387.62 million tons, a decrease of 11% year-on-year). As a role of "regulator" for domestic supply, given that there have been no significant changes in policy, prices are expected to dynamically balance, with limited growth in the scale of imported coal expected in 2026. 3) Constraints on transport capacity and signs of fatigue in the growth of outbound coal from Xinjiang. In 2025, the railway department in Xinjiang ensured outbound coal by prioritizing transport capacity, designing multi-modal transport routes, improving transport times, and reducing railway transportation costs. Efforts were made to achieve the goal of outbound coal of 100 million tons for the year. From January to October 2025, coal production in Xinjiang reached 445 million tons (+2.8% compared to 2024, with a growth rate of 17.5%), while outbound coal (railway) was 85.18 million tons (+6.4% up to November 25, with a growth rate of 50.5%), indicating a significant slowdown in growth rates. Demand side: Thermal coal demand is expected to return to growth, and non-electric demand shows resilience. There is increasing differentiation in downstream demand for coal, with demand growth from January to October 2025 showing chemicals at 10.9% > steel at 0.2% > electricity at -1.1% > building materials at -4.9%, with electricity and building materials showing declines. 1) Electricity: Coal consumption for the electricity sector is expected to return to year-on-year growth in 2026. From January to October 2025, national electricity generation increased by 2.3% year-on-year, with thermal/hydropower/nuclear/wind/solar energy increasing by -0.4%/1.6%/8.7%/7.6%/232%, with a decrease in coal demand due to a decline in thermal power. Based on calculations, under optimistic assumptions for clean energy output, it is anticipated that if electricity generation growth in 2026 exceeds 3%, coal consumption for thermal power is expected to continue to grow year-on-year. 2) Steel: The stable growth plan may support the coal consumption of the steel sector. The Ministry of Industry and Information Technology and other departments issued the "Stable Growth Plan for the Steel Industry (2025-2026)," setting a target for an average annual growth of around 4% in value added to the steel industry from 2025 to 2026. The reshaping of the global trade structure in 2026 along with China's internal circular economy construction is expected to drive steel demand growth. It is estimated that daily molten iron production will continue to be maintained at a high level of 2.4 million tons in 2026, while steel exports will remain high, thereby driving coal demand growth. 3) Chemicals: Coal consumption for modern coal chemical industries will continue to grow. Since the "14th Five-Year Plan," under the backdrop of high global energy prices, China's coal consumption in the chemical industry has maintained high-speed growth. Looking ahead, based on China's strategic focus on developing coal chemical industries, the expectation of high oil prices, and the progress in coal chemical project construction, it is predicted that coal consumption in the coal chemical industry will continue to grow in 2026. 4) Building materials: With increased infrastructure investment, the impact of the construction sector on coal consumption is expected to weaken. From January to October 2025, the average land transaction price in the top 100 cities showed a year-on-year positive change, while the year-on-year decrease in planned construction area for land transactions narrowed. The weak recovery trend in real estate continued in 2025, but signs of marginal stability were not clear. Meanwhile, from January to September 2025, special bonds were issued totaling 3.7 trillion yuan, a year-on-year increase of 2.0%, with expectations of an increase in actual physical work. It is expected that in 2026, the drag on coal consumption demand by the building materials industry is likely to continue to weaken. Risk warning: Unforeseen decrease in demand, risks from extreme weather events, risks in the credibility of third-party data, delayed update of research report information, etc.