CITIC SEC: El Nio expected to warm up, or catalyze a new round of coal price performance.

CITIC SEC has released a research report stating that the probability of the El Nio phenomenon occurring has increased, which may lead to an increase in the number of hot summer days, benefiting domestic coal demand and potentially driving an increase in demand for thermal coal in India, thus positively impacting global coal price expectations. The agency is optimistic about the performance of coal prices in Q2, even if tensions in the Middle East ease, energy supplies recover, and climate factors come into play. The agency believes that a new catalyst for coal price expectations is gradually forming, and the sector is expected to enter a new round of upward trend. Key points from CITIC SEC: The El Nio phenomenon is expected to warm up, leading to an increase in the number of hot summer days. Recently, there has been increased market attention on the El Nio phenomenon. According to reports from China National Radio, the National Climate Center predicts that El Nio will occur in May this year, forming a moderate to strong El Nio event in the summer and fall seasons. Based on historical experience, in years when El Nio occurs, the number of hot summer days in most of northern China and northeastern central China tends to increase compared to previous years. In the past 30 years, there have been five occurrences of the El Nio phenomenon in China, and in most cases, it has boosted coal demand for thermal power generation. CITIC SEC has analyzed the occurrences of the El Nio phenomenon in the past 30 years, and in four cases, there was an acceleration in the year-on-year growth rate of electricity generation or thermal power demand in the summer. 2015 was an exception, while 2009 was the most significant. CITIC SEC believes that the El Nio phenomenon usually brings high temperatures, which in turn increases the growth rate of electricity generation and consumption. If the year-on-year growth rate of residential electricity consumption increases by 1 percentage point from June to August 2026, the increase in coal consumption would be 0.18 percentage points. If the year-on-year growth rate of thermal power generation increases by 1 percentage point, the increase in coal consumption would correspond to 0.58 percentage points, equivalent to an additional consumption of 7.51 million tons of raw coal. In addition, in El Nio years, the precipitation in coal-importing countries like India is usually suppressed, leading to an acceleration in the import of thermal coal and potentially benefiting coal prices in the Asia-Pacific region. Short-term fundamental outlook: Approaching the peak season and weather factors combined, the Q2 coal price trend continues to be optimistic. Since the beginning of this year, expectations of a decrease in Indonesian production quotas and factors such as conflicts in the Middle East have gradually driven up coal prices. Although these two factors have been weakening and causing disturbances, CITIC SEC still believes that the central tendency of coal prices in Q2 will continue to rise for three main reasons: 1) Domestic and international summer peak season demand may resonate starting in late May, combined with the structural substitution demand for high-calorific coal with natural gas in Japan and South Korea, overseas coal prices may enter a new round of upward trend, driving up domestic spot prices; 2) Since the beginning of this year, domestic thermal power demand and coal consumption demand for the chemical industry have performed better than expected, and this trend is expected to continue; 3) El Nio weather may drive marginal improvement in domestic summer electricity coal demand, an increase in Indian coal demand, and strengthen the expectation of improvement in the domestic supply-demand situation. It is expected that the average price of thermal coal in Q2 may rise to over 800 RMB/ton, and coking coal prices are also expected to increase compared to the previous period. From a year-on-year perspective, the price increase effect of coal and chemical products is expected to fully manifest, with significant improvement in the average price year-on-year, the Q2 sector may have a strong performance. Risk factors: Ease of geopolitical conflicts, lower than expected reduction in overseas coal production leading to systemic decline in international coal prices; macroeconomic fluctuations affecting coal demand and prices; implementation of supply contraction policies below expectations, relaxation of safety supervision leading to increase in supply; acceleration of energy structure adjustment, increase in energy conservation and carbon reduction intensity, adding pressure to coal consumption; potential disruptions from weather factors affecting coal price expectations.