The fluctuation of the long-term association has narrowed, and the high profitability of the coal industry can be sustained. This week (February 21-25, 2022), the national development and Reform Commission recently issued the notice on further improving the coal market price formation mechanism (hereinafter referred to as the notice). Our interpretation of the notice is as follows: 1) the fluctuation range of the long-term association has been narrowed, but its impact on the central price expectation is limited. The reasonable range of tax included price of QinGang q5500 underground coal in medium and long-term transaction is 570770 yuan / ton, which is 200 yuan / ton higher and lower than the price range; The price range given in the previous work plan for the signing and performance of medium and long-term coal contracts in 2022 (Exposure Draft) is 550850 yuan / ton (including tax), and the price difference between high and low points is 300 yuan / ton. The price fluctuation range of the long-term association is narrowed and the price stability is further enhanced. 2) The high profitability of the coal industry can be sustained. According to the range of 570 ~ 770 yuan / ton in the notice, the central price of the long-term association is 670 yuan / ton, which is 135 yuan / ton higher than the previous 535 yuan / ton, an increase of 25%, indicating the improvement of the profit center of the coal industry. Previously, it was also required to realize the full coverage of long-term cooperation, and the volume of long-term cooperation increased, but the price fluctuation weakened, and the sustainability of profit stability increased. 3) The formulation of reasonable range of ore drawing price has limited impact. In February, the long-term association price was 725 yuan / ton. Considering the freight and handling charges, the long-term association ore drawing prices in Shanxi, Shaanxi and Inner Mongolia are within a reasonable period, and the overall impact is limited.
Demand is released and prices rebound. According to the coal resources network, the coal mines in the producing areas have resumed work and production well, and the supply of producing areas is stable.
The resumption of production and work in the downstream drives the rapid recovery of demand, and the demand for coal for power and chemical industry continues to release. However, the railway transportation is dominated by long-term cooperation, and the spot resources are still in short supply, which promotes the price rebound.
Coke fundamentals are expected to improve and the price is expected to be strong. According to the coal resources network, the downstream demand has recovered rapidly recently, the blast furnace operating rate of northern steel plant has recovered to a high level, and the demand for rigid inventory replenishment is strong. However, although the environmental protection and production restriction on the supply side has loosened with the end of the Winter Olympic Games, due to the rapid rise of coal prices, the small number of people in the coking plant and the lack of power to increase production, the supply continues to be tight in the short term, and the price is expected to be strong.
Coking coal prices are expected to be strong. According to the coal resource network, the coke coal inventory in the plant of downstream coke and steel enterprises is at a low level, the demand for raw coal is good, and the production limit of some coke and steel enterprises is still expected to weaken, so the enthusiasm for raw coal procurement is increased. Affected by this, coal mine shipments are good, and the overall mood of coking coal market is good. On the whole, the coking coal price is expected to be stable, medium and strong in the short term.
Investment suggestions: 1) companies with stable profits and high cash flow are expected to usher in value revaluation. It is suggested to pay attention to Jinneng Holding Shanxi Coal Industry Co.Ltd(601001) , Shanxi Coal International Energy Group Co.Ltd(600546) , China Shenhua Energy Company Limited(601088) , Shaanxi Coal Industry Company Limited(601225) . 2) The transformation of traditional energy enterprises to new energy has kicked off, and power investment energy and Yankuang energy are recommended. 3) The coking coal sector is expected to benefit from the demand growth driven by infrastructure investment. It is suggested to pay attention to Huaibei Mining Holdings Co.Ltd(600985) , Shanxi Lu’An Environmental Energydev.Co.Ltd(601699) , Pingdingshan Tianan Coal Mining Co.Ltd(601666) , Shanxi Coking Coal Energy Group Co.Ltd(000983) .
Risk tips: 1) risk of economic slowdown. 2) Risk of a sharp fall in coal prices. 3) Risk of policy change.
