Core view:
The price relationship between kerosene and bulk commodities was resumed. Over the past 40 years, international coal prices have been highly correlated with the performance of international oil prices. The elasticity of oil prices is higher than that of coal prices. China’s coal price elasticity is low. At present, the oil coal ratio is at a historical low. In the past two years, foreign coal prices have taken the lead, with an increase significantly higher than that of oil prices and other bulk commodities. Mainly due to the tight supply and demand of coal, oil prices are only one of the driving factors.
Global coal supply and demand may continue to be tight in 22 years and medium and long term. In the past two years, the world economy has recovered rapidly, with limited output of renewable energy and soaring natural gas prices. The growth of global coal demand exceeded expectations. The demand growth in the next five years mainly comes from the Asia Pacific region, and the expected slowdown of coal removal in Europe and the United States has also become a marginal growth factor. On the supply side, due to the continuous decline of export expectations and the decline of capital expenditure, the medium and long-term capacity expansion is limited, and the supply and demand side is expected to maintain a tight balance.
Ongoing changes: Geopolitics leads to the shortage of oil and gas resources and the increase of marginal demand for coal.
Russia’s energy supply has a great impact on international demand, especially in Europe. Over the past 20 years, Europe’s fossil energy consumption still accounts for more than 70%, has a high degree of dependence on Russia, and imports of oil, gas, coal and other products from Russia account for 30-50%. After the conflict between Russia and Ukraine, under the background of Russian coal export or reduction and high oil and gas prices, European coal demand has also become an important marginal increment.
Imported coal has become an important factor affecting China’s supply. In 2021, about 320 million tons of coal were imported, accounting for about 7% of China’s apparent coal consumption, especially in coastal provinces. Since the beginning of 2022, Indonesia has tightened its coal export policy in stages, with good demand from Japan, South Korea and Europe, soaring overseas coal prices and upside down coal prices outside China, which has begun to significantly affect China’s coal imports. Among them, the monthly import volume in February was only 11.23 million tons, falling to a record low.
It has outperformed the market for two consecutive years, but the valuation of coal stocks is still undervalued by at least 30%. In the upward phase of the bulk boom, the relative income of the coal sector is obvious, the profit elasticity of coal enterprises is also large, and the performance toughness in the downward phase is also significantly improved. Although the valuation of the sector has rebounded in the past two years, Pb is still discounted by 30% compared with the historical average, and the discount range of dynamic PE is greater (even without considering the rise of market coal price since the beginning of the year).
Industry view: we continue to be optimistic about the coal sector, mainly because: (1) the international coal price continues to be strong, China’s demand continues to be better than expected, and the inventory of all links is low. After the implementation of the long-term association policy, there is no tightening trend in the policy area, the supply and demand side continues to improve, and the improvement of valuation will not be restricted. (2) Q1-2 and annual profits are highly elastic: the price center of thermal coal and coking coal in 22 years is expected to rise by 10-40% compared with that in 21 years, of which Q1 and Q2 have a year-on-year high growth. (3) The medium and long-term coal price will remain high, and the dividend advantage will continue to appear. Continue to focus on companies with strong profitability and resources and elastic strengths: 601 Shaanxi Coal Industry Company Limited(601225) Jizhong Energy Resources Co.Ltd(000937) etc; (2) Companies that transform new businesses and improve valuation, such as Shan Xi Hua Yang Group New Energy Co.Ltd(600348) , power investment energy, Ningxia Baofeng Energy Group Co.Ltd(600989) , Jinneng Science&Technology Co.Ltd(603113) , etc.
In addition, power coal and anthracite companies with flexible prices China Coal Energy Company Limited(601898) (a, H), Jinneng Holding Shanxi Coal Industry Co.Ltd(601001) , Shanxi Lanhua Sci-Tech Venture Co.Ltd(600123) , Shanxi Coal International Energy Group Co.Ltd(600546) , etc. are also recommended to pay attention.
Risk warning. Lower than expected coal price growth and lower than expected demand.
