CITIC SEC: The effect of rising coal prices and performance may gradually become apparent, optimistic about the market situation in the second quarter.

CITIC SEC released a research report stating that the expected repeated disturbances in the Middle East region could lead to increased volatility in domestic and international energy prices, but the overall trend is upward. If the conflict in the region continues, coal prices are expected to rise more than expected; even if the conflict eases, it will take time for traffic through the Strait of Hormuz and energy production in the Middle East to return to pre-conflict levels. Therefore, the current situation is overall favorable for an improvement in domestic coal prices in Q2. After the sector adjusts, if new catalysts for coal price expectations emerge, the market is expected to continue to rise. At the same time, based on coal prices and corresponding chemical product price expectations, the price increases since the conflict began can be more fully reflected in Q2, favoring the start of a strong market season for the sector in Q2. Key points from CITIC SEC: In Q1 of 2026, industry average prices fluctuated, with metallurgical coal showing significant improvement. In Q1 of 2026, the average prices of various types of coal showed differences, with thermal coal prices mostly slightly decreasing year-on-year. The market average for Qinhuangdao 5500 kcal thermal coal, a benchmark for thermal coal prices, was around 719 yuan per ton, a decrease of about 1.5% year-on-year. The price of coking coal saw a decrease of more than 10% year-on-year. Metallurgical coal showed the best year-on-year performance, with most caloric coal prices increasing by more than 10%. The net profit of the sample listed companies tracked in Q1 of 2026 increased by 2.2% year-on-year. Data from the National Bureau of Statistics shows that in the first two months of 2026, the total profit of large-scale coal mining and washing enterprises was 53.13 billion yuan, an increase of 4.88% year-on-year. The bank predicts that the combined net profit of the sample listed companies in the coal mining sector tracked by the bank in Q1 of 2026 increased by about 2.2% year-on-year, with the net profit of major companies in thermal coal, coking coal, and anthracite coal changing by +1%, +21%, and -19% year-on-year respectively. Leading thermal coal companies are expected to see stable performance due to a high proportion of annual contracts and minor year-on-year price declines, while metallurgical coal companies are expected to show the most significant improvement in performance due to a significant increase in coal prices year-on-year and a low base effect. Short-term fundamental outlook: Continues to be bullish on the trend of coal prices in Q2, with the upward effect of rising coal prices potentially being more fully manifested in Q2. Since the beginning of this year, factors such as the expected decrease in Indonesian production quotas and conflicts in the Middle East have driven coal prices to gradually rebound. Although the increase in domestic coal spot prices has been relatively slow, it is expected that the central tendency of coal prices will continue to rise in Q2 for three main reasons: 1) Summer demand both domestically and abroad may begin to resonate by late May, coupled with structural substitution of high-calorie coal for natural gas in countries like Japan and South Korea, overseas coal prices may enter a new cycle of increase, driving up domestic spot prices; 2) Domestic thermal power demand has performed better than expected this year, and this trend is expected to continue; 3) High profitability in coal chemicals may further increase coal consumption. The bank predicts that the average price of thermal coal in Q2 may rise to above 800 yuan per ton, and coking coal prices are also expected to rise. From a year-on-year perspective, the price increases in coal and chemical products may be more fully reflected, with significant improvements in the average prices year-on-year, and the sector's performance in Q2 may see stronger year-on-year growth. Risk factors: Relaxation of geopolitical conflicts, insufficient reduction in overseas coal production leading to systemic decline in international coal prices; macroeconomic fluctuations affecting coal demand and prices; relaxation of safety supervision leading to increased supply; weather disruptions affecting coal price expectations.