[Value Catalog]: Research Report Center with Views.
Looking back on 2023, the core reason for the decline in the overall performance of the coal industry is the year-on-year increase in coal prices.
In the first half of 2023, due to the slower than expected recovery of downstream demand, a large influx of imported coal due to the inversion of the price spread, and the overall loose supply pattern of coal led to a sharp increase in coal prices. In the second half of the year, due to the lower than expected hydropower output and the rise in non-electricity demand, coal prices began to **, but the performance was still weaker than in 2022. 
Judging from the data of the third quarterly report of listed companies, the stress test of coal enterprises has passed, and the performance has bottomed out. From the perspective of production capacity, the current coal industry is still in the capacity ramp-up period, under the influence of the "double carbon" policy, the capacity ramp-up period may be extended, and the future coal supply and demand pattern may maintain an overall balance, and the local situation is tight. From the perspective of energy security, we remain optimistic about the profitability and resilience of the coal industry.
Looking forward to 2024, the growth rate will be lower than the demand growth rate, the policy side will continue to make efforts to protect the economy, and the coal sector is expected to attract a revaluation.
Supply: Production growth peaked, while imports provided increments
The growth rate of raw coal has slowed down, and the average daily output has peaked. Since September 2021, the capacity utilization rate of China's coal industry has increased significantly, and the average daily output has increased from 11 million tonne-days to 12.5 million ton-days. However, after two consecutive years of increasing production, the growth rate of coal has begun to slow down, and from January to November 2023, China's cumulative raw coal production is 423.9 billion tons, up 35%, a decrease of 6 percent from 20229%。The capacity utilization rate of the coal industry has remained stable for seven consecutive quarters, and the average daily output of raw coal in 2023 will be 12.75 million tonnes-day, an increase of only 2% from 2022, and the increase is relatively limited.
Demand: The role of coal power as an energy ballast has not changed, and the demand for steel is stable
The installed capacity of thermal power has increased year-on-year, and the role of energy ballast has not changed. In the past two years, due to the surge in electricity demand in summer and winter, the regional power shortage is obvious, since the power rationing in Sichuan in August 2022, the state held a meeting in September and proposed that thermal power will start new construction in 2022-236.5 billion kilowatts. From January to October 2023, the newly installed capacity of thermal power was 43.72 million kilowatts, a year-on-year increase of 60%, second only to photovoltaics. Due to the characteristics of thermal power with both cost performance and stability, it plays a flexible role in compensating for the poor output of hydropower this year.
From January to October, the power generation of power plants above designated size in the country was 803 trillion kWh, up 58%, and the proportion of coal-fired power generation in the total power generation of the whole caliber is 584%, coal power is still the most important power source in China, effectively making up for the decline in hydropower output, and giving full play to the role of guaranteeing supply. In the context of increasing electricity demand, we believe that the growth rate of thermal power capacity remains stable considering that the problem of new energy power generation consumption is becoming more and more obvious.
**: Coal prices are expected to move up in 2024
* Return to rationality, and the center gradually moves upward. After the supply-side reform, the coal industry has experienced a period of policy-based capacity clearance, and the coal ** center is stable at 600 yuan tons, in 2021, due to the limited production capacity of new production and the improvement of downstream demand, the coal price will be the center of ** to 850 yuan tons, and in 2022, due to regional conflicts, the market has panic expectations for the energy crisis, and the annual center will be ** to 1200 yuan tons again, and the coal supply and demand pattern will be looser in 2023, and the coal price will return to a more reasonable pricing range, and the center will be ** to 900 yuan tons. From the perspective of the production capacity cycle, China's coal industry is still in the capacity ramp-up period, the regional seasonal supply and demand contradiction still exists, and the coal price center is still driven by the upward movement, and we believe that the coal price center in 2024 will be 925 yuan tons. From the perspective of the pricing mechanism of coal, at present, China's coal mainly implements a dual-track pricing scheme, that is, the long-term agreement is used for thermal coal, and the market is used for coal in the non-power industry. 
In 2023, the market** is on a downward trend, but the average price difference with the long-term agreement price is about 250 yuan ton. The inversion of the two shows that the non-electricity demand at the port has formed a favorable support for the market to a certain extent, especially at the end of August 2023, when the coal price in Beigang was still above 20 million tons, but it was mainly long-term coal, and the market coal available for the market was relatively tight due to the rapid pull of non-electricity demand. On the other hand, the fluctuation range of the long-term agreement is small, since the beginning of this year, the fluctuation range of the long-term agreement is not more than 30 yuan, and the coal price center is 715 yuan, and we believe that the long-term agreement will continue to maintain at the level of 715 yuan tons next year.
On the whole, on the one hand, the Federal Reserve may be expected to cut interest rates, and a new round of quantitative easing will promote the development of fossil fuelsOn the other hand, domestic economic stimulus policies continue to increase, and fiscal policies will further provide a driving force for domestic demand. In terms of thermal coal, the demand for thermal coal is the bottom, and we believe that the demand for thermal coal will continue to grow during the 14th Five-Year Plan period, and the decline in coal quality will become an established fact in the context of increasing production and ensuring supply, so the demand for thermal coal will further increase. 
At the same time, in the context of continuous macroeconomic improvement, non-electricity demand will provide a marginal increase, and we expect the thermal coal price to be 950 yuan in 2024. In terms of coking coal, in the context of domestic production contraction, the continuous relaxation of real estate policies is expected to promote the marginal improvement of "double coke" demand, while coking coal inventories remain low, we are optimistic about the future elasticity of coking coal, we expect the coking coal price center in 2024 to be 2300 yuan ton.
The coal industry has both offensive and defensive attributes.
On the one hand, due to its resource scarcity and high elasticity characteristics, when the current supply and demand pattern is in a tight balance, when the downstream demand leads to an inflection point, we are optimistic about the coking coal sector and drive the valuation repair of the plate. On the other hand, in the context of the gradual westward shift of the production focus, we believe that Xinjiang coal export has become competitive.
According to our calculations, under the current coal price center, Xinjiang coal export will be an important incremental supplement to China's coal production, and it will also have the best advantages compared with Shanxi, Shaanxi and Mongolia when it is sent to the Sichuan-Chongqing region of Gansu. On the whole, after the performance of the coal sector bottomed out in the first three quarters of this year, the attributes of high profitability have not changed, the ROE of the industry is still at the forefront of the industry, and the dividend yield of the industry ranks first in the industry.
Investment advice. On the one hand, we are optimistic that in the recovery range of coal prices, companies with a high proportion of coal in the market and high performance elasticity may usher in valuation repair, and on the other hand, companies with integrated coal and power operations and a high proportion of long-term agreements will have stronger performance resilience, can resist cyclical fluctuations, and have the characteristics of high dividends and high dividends.
We focus on recommending [thermal coal] with the asset injection of central state-owned enterprise groups as the main line, and recommend targets with large capacity growth space in the future: China Shenhua, Shaanxi Coal, Yankuang Energy, and Guanghui Energy[Coking coal] has obvious resource scarcity characteristics, and has resource and growth advantages as the best choice: Shanxi coking coal, Lu'an Huaneng, Huaibei mining.
This is an abridged excerpt from the report, the original PDF of the report
Fossil Energy-Coal Industry 2024 Strategy Report: The Bottom Has Passed, Gradually Getting Better - The Great Wall**-20231226 [Page 29].
Report**: Value Catalog