Coking coal supply tends to be loose [institutional review]

At present, the coal industry chain is facing revaluation, and the price of double coke needs to be anchored by thermal coal. In the context of the gradual loosening of thermal coal supply, thermal coal prices may continue to decline, which in turn drives the price of Shuangjiao to continue to fall. In terms of Shuangjiao's own fundamentals, production restrictions at steel mills have caused pig iron prices to fall 3.2% year-on-year by the end of October, and it is expected that the decline will reach 5% by the end of November, and the supply of coking coal will gradually turn loose in the future.

The price of thermal coal may continue to fall.

The supply of domestic thermal coal has increased as a whole, and the inventory of thermal coal has exceeded that of last year. With the steady progress of the coal supply policy, the National Development and Reform Commission said in a statement on November 25 that since October, the supply level of thermal coal has increased significantly, with the supply of coal increasing by more than 30% over the same period last year, which continues to exceed coal consumption, and coal storage in power plants has rebounded rapidly. Since the middle and last ten days of November, the consumption of thermal coal has increased, but the average daily coal supply has reached 8.6 million tons, with a historical peak of 9.43 million tons. The average daily coal supply is nearly 2 million tons more than coal consumption, and coal storage in power plants continues to grow rapidly.

According to the data, the coal storage of power plants in China reached 147 million tons on November 23, and the coal storage in China's regional power plants has exceeded the level of the same period last year. By the end of November, coal storage in the power plant is expected to exceed that of the same period last year, reaching an all-time high. On the basis of a substantial increase in supply, the anchor point of thermal coal will continue to decline, leading to a reduction in coking coal prices.

Reduced demand to make up for the shortage of coking coal supply

At present, steel mills passively limit production, and profits are on the low side; similarly, coke enterprises are in a loss range, and actively limit production. On the whole, the market demand for coking coal is decreasing. Steel mills have made unprecedented efforts to limit production. Pig iron production in October was only 63.03 million tons, down 19.4% from January to October compared with the same period last year. Cumulative output is expected to be 734 million tons, down 3.2% from January to November, and is expected to decline by 5% year-on-year. According to the calculation, from January to November, the cumulative production reduction of pig iron is about 40.65 million tons, resulting in a reduction of coke demand of about 18.3 million tons and coking coal demand of about 24.3 million tons.

From the point of view of the ratio of supply and demand of coking coal, the supply gap caused by the reduction of coking coal imports in the early stage is basically offset by the reduction of demand. From January to September in 2021, the cumulative output of coking coal was 362.23 million tons, an increase of 6.76 million tons over the same period last year. From January to October 2021, the cumulative import of coking coal was 39.42 million tons, a decrease of 25.91 million tons compared with the same period last year. Overall, the cumulative supply reduction of coking coal from January to November is expected to be 20 million-25 million tons compared with the same period last year, while the demand reduction caused by the decline in pig iron production is about 24 million tons compared with the same period last year, and the supply gap will be offset by the decline in demand. In addition, about 3.9 million tons of coal in Hong Kong and Macao have been allowed to go through customs, further making up for the supply gap.

To sum up, the current bifocal valuation is in a reasonable range on the high side. From the point of view of the valuation of the coal industry chain, according to the price ratio of thermal coal to coking coal in the past years, as well as the pricing of coking coal by other kinds of coal blending, it is reasonable for coking coal to be priced at 1500mur2000 yuan per ton when thermal coal is 800yuan / ton. it is reasonable for coke to be more than 2400 yuan / ton. From this point of view, the current double coke price is in a reasonable high position, there is room for further reduction.

It is worth noting that if there is a cold winter weather, thermal coal prices or upward; if the control of crude steel production target is achieved, the steel mill production restrictions may be relaxed, thus increasing the demand for coking coal and coke.