SMM Review: Coal Sector Ushers in High Growth Approaching Peak Electricity Consumption in the Summer

SHANGHAI, Jun 8 (SMM) - The coal sector performs strongly again today. As of 14:15 Beijing time, the coal sector recorded a gain of 4.64%.

On the news front:

Ukrainian President Zelensky said in a video speech on June 7 local time that the country will limit energy exports in preparation for the next heating season, according to the Ukrainian newspaper Kiev Independent.

Zelensky noted that "the government will establish a command for the preparation of the next heating season, which was decided at a meeting held with the government. We discussed the issue of procuring the necessary quantities of gas and coal, and Ukraine will suspend exports of gas and coal to meet domestic demands."

Voices of securities dealers:

China Merchants Securities: Hard currency attributes come to the fore! Coal prices are expected to rise combined influences from international and domestic markets

Coal supply tightness remains in the short term, and the demand goes stronger with peak electricity consumption in the summer. And with influences from international and domestic markets, it is quite certain that coal prices will rise.

With the marginal impact of the pandemic waning and global resumption of production accelerating, energy demand has rebounded significantly, and coal and natural gas will fill the gap as the main energy sources for power generation when green energy cannot meet all new energy demand. Global coal-fired power generation reached a record high in 2021, with overall coal consumption at around 7.9 billion mt, up 6% year-on-year.

Natural gas exports of Russia, as a major exporter of natural gas, are greatly hindered due to the Russian-Ukrainian conflict that led to the joint sanctions by Europe and the United States. As such, natural gas prices rose across the globe, and coal, as an alternative energy source for power generation, will see rapid growth in international demand, sustaining coal prices at a high level worldwide.

In China, capacity structure adjustment is undertaken under the supply-side reform, and small and medium-sized coal mines withdraw from the market at an accelerated pace. Coupled with the coal import difficulties caused by Australian coal ban, short-term supply tightness remains unchanged. When the summer peak arrives, thermal coal demand will continue to rise. The steel industry, with the resumption of work and production, is also expected to boost the demand for coal. Therefore, short and mid-term coal prices will stay on the upward trajectory.

Zhongtai Securities: Pandemic improvement and summer peak coming! Thermal coal and coking coal expected to both usher in the peak season

The improving pandemic situation as well as the summer peak in terms of electricity consumption, coupled with the goal of stable economic growth, will form the high season for thermal coal and coking coal. Although the central government has been regulating coal prices with long-term orders, the prices have been higher than expected. Coal prices are likely to rise any time after China Shenhua Energy raises its purchase prices of coal. On the whole, the coal industry still manages high climate index driven by the capacity cycle, and the supply side remains tight.

Unexpected events: 1) Supply guarantee more difficult than expected; 2) Demand growth more resilient than expected; 3) Price limit stricter than expected; 4) Overseas coal prices soaring more than expected with Russia-Ukraine crisis. The quarterly earnings report of coal enterprises in the first quarter are generally sound, and are expected to exceed expectations in the second quarter.

CITIC Securities: Recovering demand + overseas energy prices are expected to continue to catalyse the coal sector

Recovering demand and overseas energy prices are expected to continue to catalyse the coal sector. Market expectations concerning industry demand is improving. With the local pandemic situation easing, energy consumption and coal demand is expected to post a new round of growth. In addition, the goal of stable economic growth, relaxing real estate and other policy expectations are likely to spark industry demand expectations in the medium term.

Short-term overseas coal and other energy prices will continue to rise, forming strong support for domestic price expectations. Although there is the policy to ramp up the production and ensure the supply, the expected increase is limited, and the supply will still be in short.

Huajin Securities: Overseas energy prices still on an upward trajectory, coal trade increasingly ambiguous

The demand side is worth attention with the improvement of pandemic situation and approaching of the summer peak. The supply at present is structurally tight and energy security issues are more highlighted in the summer. Recently, the main producing areas have been required to ramp up the production of coal, and the overall pressure to maintain supply still exists. In the overseas market, the EU's complicated shortfalls in coal supply caused by intensifying energy sanctions against Russia have also continued to impact global coal supply and demand. Therefore, overseas energy prices are still in the upward channel, and coal trade uncertainty increased, while it is almost a consensus that domestic imports of coal will contract.