GF SEC: The value of the coal industry is highlighted, and elasticity is expected. Bullish on sector valuation, dividend advantage, and upward profit elasticity.

GF SEC released a research report stating that since 2026, coal prices have continued to rise after a 25-year downward trend, with a slight decline recently due to factors such as easing geopolitical tensions and increased rainfall. In the short term, both oil prices and coal-to-oil ratios have returned to pre-conflict levels, and it is expected that coal prices will gradually stabilize. In the future, as rainfall subsides and power plant daily consumption enters the peak season, and with power plant inventories at a slightly low level, domestic and international supplies stabilize and decrease, making coal prices more likely to rise than fall. In the medium to long term, coal demand may further increase, while the difficulty of supply growth is high, resulting in an overall tight supply and demand situation. As of now, the dividend yield of leading companies is generally still above 4%, optimistic about sector valuation, dividend advantages, and upward profit elasticity. GF SEC's main points are as follows: Analysis of the coal industry in 2026: the start of a new cycle, supply and demand significantly exceeding expectations 1. The prosperity of the coal industry in the first half of the year has significantly increased, with supply and demand remaining tight. The average price of thermal coal in the first half of the year has reached about 770 RMB/ton, showing a significant increase beyond expectations; 2. Coal price cycle: entering a new cycle in 26 years, with the first half of the year showing the strongest performance in a decade, with thermal and coking coal prices rising by 10% and 17% respectively; 3. Market performance: relative to the strong fundamental situation, the coal sector market performance is weaker. Supply and demand performance exceeding expectations, prosperity may continue in the second half of the year 1. Imports: Looking forward to the second half of the year, due to the uncertainty of Indonesian policies and the lack of growth in supplies from other major producing countries, it is expected that import price differentials and import volume will likely remain at historical lows; 2. Domestic production: In the second half of the year, production is expected to grow significantly due to increased control in Xinjiang and the impact of coal mine accidents in Shanxi; 3. Demand: Structural improvements in coal demand, with strong resilience in power and chemical demand. Mid-term perspective on supply: new capacity growth rate slows down, peak coal mines decline 1. Production: Domestic production is stabilizing and declining, with reductions mainly from Shanxi and Xinjiang; 2. Increment: Due to the easing of supply pressures and the improvement of compliance requirements such as safety and environmental protection, there may be risks of reduction for some capacity with incomplete procedures, and the growth potential of existing producing mines is not significant, with growth expected to slow to 0.5%-1.0% during the 15th five-year plan; 3. In the long term, supply constraints may continue to exist, with pressure from resources and capacity succession possibly greater than concerns from the demand side. Medium to long term perspective on demand: strong resilience in power demand, growth potential in chemical industry 1. Electricity consumption: AI and energy substitution continue to drive electricity consumption growth beyond expectations, with electricity consumption growth expected to reach 5% during the 15th five-year plan. Information transmission, software and information technology services, and charging and swapping services are important marginal increments driving electricity consumption growth in recent years; 2. Energy structure: Pressure on renewable energy integration becomes apparent, and the proportion of thermal power in new power generation is expected to increase; 3. 15th five-year plan: It is expected that coal demand for thermal power and chemical industry will maintain resilient growth. Specifically, thermal power demand is expected to maintain a resilient growth of about 2%, while the compound annual growth rate of coal consumption in the chemical sector will remain above 5%. After the US-Iran conflict, overseas coal markets are expected to maintain a tight balance between supply and demand 1. Energy prices: During this cycle, coal prices have seen relatively moderate increases, with minimal differentiation among different coal types, and subsequent price adjustments are far smaller than those of oil and natural gas; 2. Global supply and demand: IEA predicts a slight decrease in global coal demand over the next five years, but a greater decrease in supply; 3. Overseas coal costs: In recent years, overseas coal production costs have steadily increased with inflation, with countries such as Indonesia, Colombia, and Russia seeing significant increases in costs over the past three years. Risk Warning Downstream demand declines, production and imports grow beyond expectations, and costs increase significantly.