Debang Securities: The peak season of "March gold, April silver" is approaching, and coal prices will fluctuate.

Dabang Securities released a research report stating that current coal mine safety production has become a national priority, with safety inspections expected to remain at a high pressure state, capacity utilization constrained, and supply contraction expectations strengthened. Dabang Securities believes that with the convening of the political meeting on July 24, 2023, and the issuance of the "Opinions on Further Strengthening Mine Safety Production Work" by the two departments on September 6, significant changes are expected in the fundamentals and expectations of the coal industry. The third quarter of 2023 is expected to be the low point of the year in terms of performance, with the industry's profitability expected to increase year-on-year in 2024, following a low and then high trajectory. Several high-quality coal companies' controlling shareholders have successively announced shareholding plans, demonstrating confidence. The high dividend yields of the coal sector under low capital expenditure are attractive, and under the continuous promotion of the Chinese valuation system, corporate value is further emphasized by shareholders. The sector's "outperform market" rating is maintained. Three recommended directions are: 1) Elasticity of coking coal. In anticipation of recovery, coking coal has room for rebound after experiencing a significant price drop, recommended companies include Shanxi Luan Environmental Energy Dev.Co., Ltd (601699.SH), Pingdingshan Tianan Coal Mining (601666.SH), Huaibei Mining Holdings (600985.SH), CHINA RISUN GP (01907), and recommended for attention are Shanxi Coking Coal Energy Group (000983.SZ), Shaanxi Heimao Coking (601015.SH), etc. 2) High-quality dividends. High-quality companies have long-term dividend capabilities, and with decreasing capital expenditure, the dividend rate has room for continuous improvement. Recommended companies include Shaanxi Coal Industry (601225.SH), Shanxi Coal International Energy Group (600546.SH), China Coal Energy (601898.SH), and attention should be paid to China Shenhua Energy (601088.SH), Yankuang Energy Group (600188.SH), Shanxi Lanhua Sci-Tech Venture (600123.SH), etc. 3) Long-term increment. Companies with capacity release have a stronger explosive potential in the next cycle startup, recommended companies include Shan Xi Hua Yang Group New Energy (600348.SH), Beijing Haohua Energy Resource (601101.SH), Guanghui Energy (600256.SH), etc. Industrial electricity consumption is gradually released, and thermal coal is operating at a high level. A) Price and event review: This week, the price of Qinhuangdao Port thermal coal Q5500 fell to 922 yuan/ton (down 1.91% month-on-month). On the supply side, most coal mines in the main producing areas have resumed production, leading to a noticeable increase in supply. At the pithead, haulage vehicles in the mining areas have returned to normal, with prices fluctuating narrowly with sales conditions. At ports, as the traditional off-season for demand approaches, the pace of de-stocking is slow, and port haulage is mainly based on just-in-time needs, with traders not showing a high willingness to ship at low prices. Downstream, industrial enterprises are resuming work, and improved industrial electricity demand is driving the daily consumption of coastal power plants. With the replenishment of long-term contracts and imports, there is currently no pressure on terminal restocking, and there is only average willingness to increase production. B) Short-term price outlook: Dabang Securities believes that thermal coal prices will continue to fluctuate at high levels during the winter peak season. i) Non-electrical peak season in the "golden three and silver four" months: As we enter the "golden three and silver four" months, demand for re-stocking in non-electric industries such as steel and cement is expected to gradually increase, driven by a stronger industrial electricity demand base. ii) Continuation of de-stocking at ports: As of March 1, inventory at the 9 Bohai Rim ports had fallen to 2225.5 tons, a 16.12% decrease from the same period last year; iii) Non-electrical demand resilience: According to Mysteel data, the latest operating rates for methanol and urea are 86.18% and 83.45%, respectively, reaching historical highs. iv) Re-implementation of Russian coal tariffs, raising import costs: According to Mysteel news, the Russian government has decided to re-implement flexible coal export measures starting from March 1, with tax rates ranging between 4% and 7%, and calculated based on a 5.5% tariff on Russian coal exports, the import cost is expected to increase by approximately 5.8 US dollars. With imported costs on par with domestic coal prices, profit margins compressed and imports may face reduction. C) Medium to long-term price outlook: Dabang Securities believes that the center of the coal price will further increase in 2024. i) Based on the total domestic production of 46.58 billion tons in 2023, calculated on an annualized basis using average monthly production of 3.7-4.0 billion tons, the 2024 production range is expected to be between 44-48 billion tons. Even in the case of a production of 4 billion tons, total production growth is still showing signs of slowing down; ii) In 2024, thermal coal long-term contracts have performance requirements for both supply and demand parties, in the absence of a clear advantage in import price differentials, power plants are expected to prioritize the delivery of long-term contracts to ensure performance, hence imported quantities are likely to decrease in 2024. As the peak season approaches, coking coal will experience minor fluctuations. A) Price and event review: This week, the main coking coal price at Jingtang Port fell slightly to 2430 yuan/ton (down 4.33% month-on-month). In terms of coking coal: on the production side, most coal mines have resumed production, leading to a continued increase in overall supply. On the downstream side, due to the continuous decline in coking coal prices, the number of restricted production coke companies is gradually increasing. According to Mysteel data, the overall capacity utilization rate of independent coking coal enterprises nationwide is 67.68%, down 2.39% from the previous period. Downstream industries mainly consume existing coal inventory, and are relatively cautious in purchasing raw coal, keeping coking enterprises in a low raw material inventory state. Regarding coke: this week, the fourth round of coke price reductions have been implemented, with wet quenched coke reduced by 100 yuan/ton, and dry quenched coke reduced by 110 yuan/ton. Some coke enterprises are facing losses.Expansion continues, production restrictions have been increased, and supply has further tightened. In the downstream sector, steel mills' profits have been restored as the peak season approaches, downstream users are gradually replenishing their stockpiles, and pressure on coking enterprises to ship out products has eased, with coking coal inventories running at low levels in the plants. B) Short-term price outlook: Denbang Securities predicts that the prices of double coke are expected to remain stable for the time being. i) Some blast furnaces have shown signs of resuming production after the Chinese New Year, and considering the recent decrease in restocking capacity, steel mills may have a willingness to continue replenishing their stocks; ii) Mainstream large mines in Shanxi Province have raised prices for coke and fertilizer coal by 200 yuan in the first quarter of 2024, with prime coking coal in Pingdingshan increasing by 200 yuan per ton and third-grade coking coal increasing by 150 yuan per ton. iii) On February 8, the Shanxi Provincial Emergency Management Department, the Shanxi Branch of the National Mine Safety Supervision Bureau, and the Shanxi Provincial Energy Bureau issued a notice on carrying out a special campaign to address the issues of "three excesses" and concealed working faces in coal mines, targeting seven key areas for special rectification. Under the combined supervision and enforcement measures, expectations for supply contraction are strengthened.C) Medium to long-term price outlook: DBS Securities believes that with the improvement in macro expectations in 2024, there is significant elasticity in the price of coking coal. i) Domestic coking coal production is stable, with imports mainly coming from Mongolia and Australia. However, in 2023, Mongolian coal clearance remains at historically high levels, and Australian hard coking coal exports have decreased compared to the previous year, with further growth in the future likely to be limited. ii) The State Council Tariff Commission announced that starting from January 1, 2024, coal imports from Indonesia and Australia will continue to maintain zero tariffs under the ASEAN Free Trade Agreement and the China-Australia Free Trade Agreement. Imports of coking coal from other countries will be subject to a 3% tax rate, leading to an increase in import costs and a possible decline in coking coal imports in 2024. iii) On October 24, 2023, the National People's Congress approved the State Council's issuance of trillion-yuan government bonds to strengthen fiscal efforts to stabilize growth, highlighting the country's emphasis on economic growth and aiding in the stabilization of mid-term economic growth expectations. iv) With the implementation and continuous improvement of differentiated housing credit, adjustments to first-home mortgage rates, city-specific policies, and the steady recovery of the real estate market and the formation of infrastructure physical quantities, coking coal demand may experience a stable rebound. Weekly data review: 1) Coal prices and downstream prices: Qinhuangdao Q5500 warehouse price at 922 yuan/ton (-1.91%), Jingtang Port main coking coal warehouse price at 2430 yuan/ton (-4.33%), and domestic main port metallurgical coke warehouse price at 2193 yuan/ton (-2.14%). 2) Supply and demand analysis: Qinhuangdao port railway inflow volume at 457,000 tons (+41.93%), port throughput at 397,000 tons (+12.78%). 3) Inventory analysis: Qinhuangdao inventory at 5.14 million tons, a decrease of 40,000 tons (-0.77%) from the previous week, and steel mill coking coal inventory at 8.07 million tons, a decrease of 383,000 tons (-4.53%) from the previous week. 4) International coal market: IPE Rotterdam coal price at $107.0/ton (+5.94%), Australian Peak Downs coking coal price at $329.5/ton (+0.46%), power coal price spread at 13.68 yuan/ton, a decrease of 56.82 yuan/ton, and main coking coal price spread at -221.35 yuan/ton, an increase of 120.44 yuan/ton compared to previous data.