CMSC: Coal prices have bottomed out and returned to a reasonable range. Investment focus on dividends + cyclical double mainline.

The CMSC released a research report stating that, based on the current tightening of coal supply and the expected release of winter coal demand, the investment rating for the coal industry is maintained as "recommended". The policy of ensuring supply stability, controlling production, and improving quality will help the coal market operate smoothly. Looking ahead, the expectation for policy adjustments on the supply side next year is still ongoing, with coal demand expected to steadily increase, and the central coal price is expected to rise year-on-year by 2026. The main investment strategies for the sector can be considered from both a dividend perspective and a cyclical logic. The main points of view from CMSC are as follows: Policy efforts to ensure supply stability, control production, and improve quality will help the coal market operate smoothly. In 2025, a series of coal policies issued by the government mainly focus on two main themes. On one hand, to ensure supply, measures such as clarifying the policy to increase production and reserves, promoting the construction of supply bases, improving coal inventories, and strengthening long-term contract performance monitoring will enhance the resilience of the supply. On the other hand, in terms of improving quality, policies such as coal and new energy integration development guidance will promote industry transformation and help achieve the "dual carbon" goals. In response to the disorderly competition in the first half of the year due to low coal prices and excessive production in some coal mines, the National Energy Administration issued an important notice in July on checking excessive coal production, which effectively regulated the market order and signaled a shift towards market rationalization. This series of policy combinations not only ensure national energy security, but also optimize the supply structure, curb vicious competition, and solidify the industry's profit foundation to ensure the stable operation of the coal market. Thermal Coal: Supply shrinkage, expected demand growth, and the centralization of coal prices are expected to rise year-on-year. On the supply side, China's coal reserves are relatively stable, and the growth rate of coal production is slowing down. After the enforcement of the excessive production check policy in July, the monthly coal production growth rate turned from positive to negative, coupled with factors such as coal mines stopping work and production at the end of the year, as well as central safety production inspections, the annual production growth rate is further restricted. As for imports, influenced by policy guidance and the weakening cost advantage of imported coal, the annual decline in coal imports in 2025 is estimated to be around 10%. On the demand side, with the strong season for thermal power in the second half of the year, the month-on-month growth rate of thermal power generation in October was 7.3%. With the expectation of a cold winter catalyzing heating season stocking, the daily coal consumption of thermal power is increasing, and the annual electricity generation level is expected to remain stable or slightly increase compared to last year. Looking ahead, the expectation for policy adjustments on the supply side next year is ongoing, with thermal coal demand expected to grow steadily, and the centralization of coal prices in 2026 is expected to rise year-on-year. Coking Coal: Limited supply increment for scarce coal types, elastic demand growth in the context of recovery expectations. Coking coal, as a scarce coal type, accounts for 20%-25% of the total coal reserves, and is relatively difficult to mine. In recent years, there have been few new coking coal mines under construction or newly put into production, resulting in a rigid domestic supply. On the import side, affected by price inversion and export control in Australia, as well as tariff impacts in the United States, China's imports of coking coal decreased year-on-year in 2025. Meanwhile, Mongolia and Russia are constrained by transportation capacity, and their import volume may already be at a high level, with little room for substantial increase in the future. On the demand side, although coking coal demand is weak in the short term, it still has resilience. In the medium to long term, with the advancement of the country's stable growth policies, the end of the "14th Five-Year Plan" and the start of the "15th Five-Year Plan", the repair of the real estate and infrastructure sectors are expected to drive up steel demand, thereby stimulating growth in coking coal consumption. As a market-oriented coal type, coking coal prices are more elastic and have greater potential for growth under demand recovery. Dividend + cyclical dual themes, the sector still has long-term investment value. As a traditional cyclical industry, the coal sector bull market is usually driven by rising coal prices, with a strong correlation between coal prices and stock prices. The coal industry's supply is tending towards rigidity, with limited long-term new production capacity, and the dominance of thermal power in the electricity generation sector will remain stable. Electricity demand is expected to grow steadily, and non-electric, especially chemical, coal demand has room for growth. In the short term, under the influence of the "anti-internal circulation" policy, the expectation for supply tightening is still ongoing. As temperatures gradually drop in the fourth quarter, power plant daily consumption is expected to accelerate, leading to a potential rise in coal prices. The centralization of coal prices is expected to rise next year. Currently, high-quality listed coal companies have characteristics of high profitability, high cash flow, and high dividends, enhancing their dividend qualities and having long-term investment value. Risk Warning: Coal production below expectations, coal imports exceeding expectations, coal prices falling more than expected, coal demand below expectations, etc.