Sealand: Demand for long-term rise in coal prices to maintain "recommended" rating for coal mining industry.

Sealand released a research report stating that, from a broad perspective, the constraints on the supply side of the coal mining industry have not changed, and the demand side may fluctuate periodically, leading to price fluctuations and dynamic rebalancing. The top coal enterprises have high asset quality, ample cash flow, and exhibit five characteristics: "high profitability, high cash flow, high barriers, high dividends, high safety margins." Additionally, starting from 2025, many state-owned coal enterprises have initiated plans to increase their holdings and inject assets into listed companies, signaling positive news and demonstrating confidence in the development, growth, and stability of coal enterprises. It is recommended to grasp the value attributes of the coal sector at a low point and maintain a "recommended" rating for the coal mining industry. Sealand's main points are as follows: Supply side: Production continued to decline in January and February, while import growth contracted, with overall supply shifting from growth to decline. Production: In January and February, the year-on-year growth rate of raw coal production was -0.30%, a narrower decrease compared to 0.70% in December 2025. From January to February 2026, the output of large-scale industrial coal production was 760 million tons, a decrease of 0.3% year-on-year, with a narrower decrease of 0.7% compared to December 2025. The daily output was 12.93 million tons, a decrease of 41,000 tons/day year-on-year, which was 1.167 million tons/day lower than in December 2025. In January and February, the sample large coal enterprises showed differentiation in coal production. Using China Shenhua Energy, Shaanxi Coal Industry, and Shanxi Luan Environmental Energy Development Co., Ltd as samples. From January to February 2026, China Shenhua Energy's production of commercial coal was 52.5 million tons, a year-on-year decrease of 1.1%; Shaanxi Coal Industry's coal production was 29.34 million tons, an increase of 2.3% year-on-year; Shanxi Luan Environmental Energy Development Co., Ltd's raw coal production was 9.2 million tons, an increase of 3.7% year-on-year. Overall, the coal production of sample companies showed differentiation year-on-year. Import side: Coal imports increased by 1.50% year-on-year in January and February, with a decrease of 10.40% compared to December 2025. From January to February 2026, China imported 77.2223 million tons of coal, a year-on-year increase of 1.50%, with a decrease of 10.40% compared to December 2025. The price difference for coal imports in January was still significant, coupled with pre-holiday stocking and differences during the Spring Festival holiday, leading to a year-on-year increase in coal imports. In February, with the significant narrowing of the price difference during the Spring Festival holiday and the impact, coal imports decreased year-on-year. Based on a year-on-year growth rate of -0.30% for domestic production and +1.50% for imports in January and February 2026, the year-on-year growth rate of domestic coal supply in January and February 2026 was estimated to be -0.1% (the calculated supply growth rate did not consider changes in calorific value), a year-on-year decrease of 0.7 percentage points compared to December 2025. Demand side: Power generation accelerated in January and February, with positive growth contributions from the chemical, construction materials, and coke industries; overall demand increased compared to December 2025. Power generation: Year-on-year growth of large-scale industrial power generation was +3.3% in January and February, an acceleration compared to +6.5% in December 2025. Power generation in large-scale industries accelerated. In January and February, large-scale industrial electricity production reached 1571.8 billion kilowatt-hours, a year-on-year increase of 4.1%, accelerating by 4.0 percentage points compared to December 2025; daily electricity generation was 266.4 billion kilowatt-hours. By product category, in January and February, large-scale industrial thermal power generation reversed its decline, hydroelectric power generation accelerated, while nuclear power, wind power, and CECEP Solar Energy's power generation growth slowed down. Specifically, large-scale industrial thermal power generation increased by 3.3% year-on-year, compared to a decrease of 3.2% in December 2025; large-scale industrial hydropower generation increased by 6.8%, an acceleration of 2.7 percentage points; large-scale industrial nuclear power increased by 0.8%, a slowdown of 2.3 percentage points; large-scale industrial wind power increased by 5.3%, a slowdown of 3.6 percentage points; and large-scale industrial CECEP Solar Energy's power generation increased by 9.9%, a slowdown of 8.3 percentage points. Iron and steel: Production of pig iron and coke decreased by -2.7% and +1.1% year-on-year, respectively, in January and February. In January and February 2026, China produced 137.7 million tons of pig iron, a year-on-year decrease of 2.7%, with a narrower decline of 7.2% compared to December 2025; coke production was 82.55 million tons, a year-on-year increase of 1.10%, with a slowdown of 0.80% compared to December 2025. The performance of pig iron and coke production varied. Looking at downstream activities, in January and February, there was an increase in investment in infrastructure and manufacturing, while steel exports declined and the real estate sector remained stagnant. In January and February 2026, the completed investment in infrastructure, real estate development, and new housing construction area increased by +9.76%/-11.10%/-23.10% year-on-year, with growth rates higher than +11.24%/+6.10%/-2.70% in December 2025. Additionally, in January and February 2026, manufacturing investment increased by +3.10% year-on-year, an acceleration of 2.50% compared to December 2025, while steel exports decreased by 8.10% year-on-year (mainly due to the high base formed by the "export rush" period in the same period of 2025 and the impact of new export license regulations in 2026), with a slowdown of 24.30% compared to December 2025. Building materials and chemicals: Cement and chemical industries made positive contributions, with a week-to-week average production growth of +6.80%/+6.5% for cement and methanol in January and February. In January and February 2026, national cement production reached 178.27 million tons, an increase of 6.80% year-on-year, with an increase of 13.40% compared to December 2025; methanol production was strong, with a weekly average production of 204.5 million tons in January and February, an increase of 6.5% year-on-year, and a decrease of 3.3% compared to December 2025. According to the data from the Coal Industry Association, if the proportions of electricity, chemicals, construction materials, and steel in coal downstream demand in 2025 were 61%, 9%, 5%, and 16% respectively, then the estimated growth of coal consumption driven by the four major industries in January and February 2026 was +3.1% year-on-year, an acceleration of 2.7 percentage points compared to December 2025. Inventory: Overall destocking of thermal coal and coking coal in January and February Thermal coal inventory: Overall destocking. At the end of February 2026, the inventory of thermal coal production enterprises decreased by 343,000 tons to 3.738 million tons from the beginning of the year; Northern port thermal coal inventory decreased by 3.921 million tons to 24.406 million tons, a year-on-year decrease of 4.849 million tons, with a significant destocking in January (a decrease of 3.766 million tons from the beginning to the end of the month). In terms of transportation, in the first half of January, the rebound in coal prices at the production sites led to a lack of enthusiasm for transportation to ports, resulting in low transportation levels. In the second half of January, due to the influence of cold air prompting downstream purchases and the release of pre-holiday stocking demands, outbound transportation gradually increased; the inventory of six major power plants increased by 259,000 tons to 13.712 million tons. Coking coal inventory: Destocking in all sectors. By the end of February 2026 compared to the beginning of the year, the inventory of coking coal production enterprises decreased by 350,100 tons to 1.8716 million tons; the coking coal inventory at North Port decreased by 262,200 tons to 2.6752 million tons; the coking coal inventory at coking plants decreased by 155,200 tons to 2.5238 million tons; and the coking coal inventory at steel mills decreased by 58,000 tons to 5.2024 million tons. Price The average monthly price of thermal coal at Northern ports in January and February was 702.40 yuan per ton, a year-on-year decrease of -5.77% (equivalent to -43 yuan per ton), with the average price for February reaching 713.19 yuan per ton, a month-on-month increase of +3.12% (equivalent to +22 yuan per ton); the average monthly price of main coking coal at ports in January and February was 1,708.60 yuan per ton, a year-on-year increase of +15.84% (equivalent to +234 yuan per ton), with the average price in February being 1,686.25 yuan per ton, a month-on-month decrease of -2.58% (equivalent to -45 yuan per ton). In summary, compared to December 2025, from January to February, overall supply shifted from growth to decline, with demand for power generation transitioning from decline to increase, leading to an overall improvement in supply and demand. The industry's overall inventory decreased, with the average coal prices at ports in January and February showing a year-on-year decrease of 43 yuan per ton, but a month-on-month increase of 22 yuan per ton in February. From the supply side, the production of 760 million tons of raw coal in January and February decreased by 0.3%, while coal imports increased by 1.50%, resulting in an estimated supply decrease of 0.1% year-on-year. On the demand side, overall demand increased in January and February, with accelerated power generation, positive contributions from the chemical, metallurgical, and construction materials industries. Thermal power generation increased by 3.3% year-on-year, methanol production by 6.5% year-on-year, coke production by 1.1% year-on-year, and cement production by 6.80% year-on-year, resulting in an estimated demand increase of 3.1% year-on-year. In terms of inventory, there was a destocking trend, with the Northern port thermal coal inventory decreasing by 3.921 million tons to 24.406 million tons at the end of February compared to the beginning of the year, resulting in a year-on-year decrease of 4.849 million tons. Overall, the supply and demand improved from January to February, with a decrease in industry inventory. Although the average price in January and February showed a year-on-year decrease, the average price in February increased compared to January, with the average price of 713.19 yuan per ton for Qinhuangdao 5500 kcal port coal in February, an increase of 22 yuan per ton from January. Looking ahead, Sealand expects that with the inversion of coal imports, domestic coal demand is expected to gradually increase from April to May, coupled with the continued tensions in the Middle East, where Brent crude oil prices remain above 100 US dollars per barrel as of March 13th, overseas energy prices are expected to provide support for coal prices. From a medium-term perspective, any changes in policies to ensure the supply of production capacity may have a significant impact on the balance of supply and demand in the industry. Risk Warning: 1) Economic growth is lower than expected; 2) Policy control measures exceed expectations; 3) Continuous risk of renewable energy substitution; 4) Impact of coal imports; 5) Key focus on company performance may fall short of expectations; 6) Risk of calculation errors; 7) Risk of price fluctuations in thermal coal; 8) Risk of global trade frictions; 9) Geopolitical risks.