Supply side reform accelerated the withdrawal of production capacity, resulting in a lack of flexibility. 220 million tons of new production capacity spared no effort to ensure supply and reduce “coal shortage”. Since the supply side capacity removal in 2016, the coal industry has withdrawn a large number of ineffective and backward capacity. During the 13th Five Year Plan period, 920 million tons of coal mine capacity has been withdrawn. From 2016 to 2020, a total of 420 million tons of new coal capacity has been released. The rapid withdrawal of coal capacity has led to insufficient supply elasticity. In 2021, the high growth rate of downstream demand combined with insufficient output release on the supply side has led to “coal shortage”, In the second half of the year, the national development and Reform Commission vigorously promoted the implementation of coal supply guarantee measures, quickly released 220 million tons of high-quality production capacity (including temporary production capacity) in Inner Mongolia, Shanxi and other places in the short term, and entered the supply guarantee in winter, so that the output increased rapidly, and the average daily output exceeded 12 million tons / day in November.
The sluggish investment in fixed assets led to slow capacity expansion, and the price of Imported Coking Coal fluctuated continuously due to the epidemic. As of October 2021, the completed investment in fixed assets in the coal industry was 316.166 billion yuan, with a year-on-year growth rate of 10.60%. The investment in fixed assets is still at a relatively low level. The long-term downturn in coal prices leads to the low profit level of coal enterprises. In addition, the dual carbon target suppresses the expansion of coal enterprises. As the capacity expansion takes 3-5 years, the release of investment in fixed assets is still insufficient in the short term. Due to the impact of the epidemic, the customs clearance efficiency of imported coal in 2021 was not high, and it was closed once in August. The dependence on coking coal import exceeds 15%. The tight situation of coking coal import leads to tight supply and sharp price fluctuations. Mengxi coking coal price index once approached 3000 points in September.
In 2021, the demand for downstream thermal power increased by double digits, and the gap between coal supply and demand opened at the end of November and gradually repaired. With the overseas epidemic gradually under effective control, the demand began to recover gradually, the external demand continued to increase, and the prosperity of the downstream coal industry continued to improve. From January to November, the power consumption of the whole society increased by 11.4% year-on-year, of which the thermal power generation reached 522 million kwh, with a year-on-year increase of 9.90%. Due to the lack of elasticity on the coal supply side, the coal output is significantly lower than that in the same period in history due to factors such as safety inspection. In the first nine months of 2021, there is a continuous gap in power coal. In October, the coal price soared, and the national development and Reform Commission approved that the coal production capacity of Inner Mongolia and Shanxi should be fully guaranteed. The gap between supply and demand began to be gradually repaired at the end of November, with the national average daily coal output exceeding 12 million tons / day, ports Plant inventory data rose significantly.
In the first three quarters, the profit increased by more than 370%, and the adjustment and superposition of price formation mechanism, transformation and upgrading will improve the industry valuation. Due to the superposition of factors such as insufficient capacity release in China and shutdown caused by safety and environmental protection, the price of thermal coal and coking coal soared to 1190 yuan / ton in early October, fell somewhat in December, and is still at a high level of more than 900 yuan. Coking coal has exceeded 2400 yuan / ton on October 9, and the price has doubled as a whole. The net profit attributable to the parent company of Shenwan coal enterprises in the first three quarters increased by an average of 373% year-on-year. In addition, according to the work plan for the signing and performance of medium and long-term coal contracts in 2022 (Exposure Draft), the original benchmark price of 535 yuan is expected to be raised to 700 yuan, the central price of good coal will rise, the profits of coal enterprises are expected to maintain a high level, and the industry valuation is expected to improve.
Investment suggestions: focus on two types: one is the leading power coal enterprises with good resource endowment, low valuation, high dividend and certain growth; Second, it is a leading coking coal enterprise with good growth.
Risk tip: the economic downturn leads to insufficient demand, a sharp decline in coal prices, changes in coal policies, bad weather or coal mine safety production accidents of relevant coal companies, resulting in less than expected profits, etc.
