Net Profits in the Coal Industry Plummet, but These Companies Have Found Ways to Break Through! | Reading Annual Reports to Understand Industries

Recently, coal-listed companies have successively released their 2024 annual reports and 2025 Q1 reports. Futures Daily reporters found that 39 listed coal companies achieved a profit of 165.034 billion yuan in 2024, with 32 companies being profitable. In Q1 this year, 39 listed coal companies achieved a profit of 33.645 billion yuan, with 29 companies being profitable. Notably, affected by the decline in coal prices, the profits of listed coal companies generally declined YoY, both in the annual report and the Q1 report. In 2024, only 7 companies, including Baofeng Energy, SDIC Energy, Zhengzhou Coal Mining Machinery, Shaanxi Energy, Xinji Energy, Huaihe Energy, and Liaoning Energy, achieved positive profit growth. In Q1 this year, only 3 companies, including Baofeng Energy, Zhengzhou Coal Mining Machinery, and Liaoning Energy, achieved positive profit growth.

Reporters carefully reviewed the annual and Q1 reports of listed coal companies and found that their performance differentiation was very obvious. In 2024, the price of Shanxi medium-sulfur coking coal fell by 42%, and it continued to drop by 25% in Q1 this year. During the same period, the price of 5500K thermal coal at Qinhuangdao Port fell by 14.5% and 12.3%, respectively. However, thermal coal pricing is generally based on long-term contracts, making it less affected by market price fluctuations. Companies mainly producing thermal coal generally performed better than coking coal producers, such as Shenhua, China Coal, and Xinji Energy.

Baofeng Energy, by deploying the entire industry chain of coal coking, achieved a net profit growth of 12.16% in 2024 and continued to grow against the trend by 71.49% in Q1 this year. Its coal chemical sector contributed 65% of the profit, effectively offsetting the impact of the decline in coal prices. In addition, Shaanxi Coal Industry and Xinji Energy also adopted the method of coal-electricity joint operation, and their profit declines were significantly lower than other companies.

Reporters found that the average cost per ton of coal for some high-quality resource companies was far lower than the industry average. For example, the cost per ton of coal for Shaanxi Coal Industry was around 280 yuan, while the industry average in 2024 was 440 yuan. In addition, some companies reduced costs and increased efficiency through technological upgrades and refined material management.

Li Rong, a black researcher at Wuchan Zhongda Futures, told reporters that the net profit of the coal industry generally declined YoY in 2024. The total profit of China's coal mining and washing industry fell by 22% YoY, directly due to the decline in coal prices. The price of thermal coal fell by 16.3% compared to the beginning of the year, while the price of the most-traded coking coal futures contract fell by 38.4%. The price decline directly affected the sales revenue of coal companies, leading to a decline in net profit. From a fundamental perspective, the supply growth rate exceeding the demand growth rate was one of the important factors leading to the reduction in net profit of coal companies. In 2024, raw coal production increased by 1.3% YoY, and imports increased by 14.4% YoY. According to data from the National Bureau of Statistics, preliminary estimates show that coal consumption increased by 1.7%.The growth rate on the supply side exceeded that on the demand side. This supply-demand imbalance not only curbed the upside potential of coal prices but also placed greater pressure on coal enterprises in sales.

"Currently, the application of financial derivatives by coal enterprises has shifted from single hedging to diversified strategies, including using on-exchange and over-the-counter derivatives to hedge against price fluctuation risks, reducing margin occupancy through warrant pledges, and improving delivery efficiency through physical delivery + multimodal transport," Liu Huifeng said. In the early stage, mainly some large enterprises actively participated in the futures market relying on their resource and institutional advantages, while small and medium-sized enterprises were more cautious about hedging. In the past two years, as coal prices continued to decline and financial derivatives were widely used, the willingness of small and medium-sized coal enterprises to participate in hedging, either passively or actively, has increased. They have begun to actively engage with futures companies and hope that futures companies can provide corresponding hedging solutions based on their own situations.

"In late October last year, we came into contact with a coal enterprise with an annual coking coal production capacity of about 500,000 mt and a regular inventory of 3,000 mt to 5,000 mt. They hoped we could provide a corresponding hedging solution. Given that coal prices had just experienced a rebound at that time, there was certain policy expectation support before the end of the year, and the futures market was in a large discount, there were certain risks in unilateral hedging. Therefore, we recommended a coking coal calendar spread strategy, namely, buying the January contract and selling the May contract to hedge against some losses. As of early December last year, this strategy achieved a gain of about 50 points," Liu Huifeng said. After mid-December last year, the coking coal futures market once again traded at a premium to the spot market. Therefore, we recommended that they conduct hedging on the new most-traded contract and gradually increase the hedging ratio, ultimately effectively avoiding the risk of coking coal price declines last year.

The reporter noted that in the first quarter of this year, the net profits of coal enterprises continued to decline.The reasons for the decline are similar to those in 2024: On the one hand, coal prices continued to fall. By the end of March, spot prices of thermal coal and the most-traded coking coal futures had dropped by approximately 11.7% and 14.6%, respectively, compared to the beginning of the year, directly compressing enterprises' profit margins. On the other hand, the supply-demand imbalance in the market intensified. In Q1 this year, raw coal production increased by 8.1% YoY, while imports fell by 0.9%, leading to an increase in total supply. However, demand remained weak. Power generation from thermal power plants decreased by 0.3% YoY, and demand from major coal-consuming industries such as steel and building materials was sluggish, resulting in high inventory levels and further suppressing coal prices.

"Currently, the oversupply of coal remains unchanged, and enterprises are facing numerous pressures, including declining revenues, reduced profits, and sluggish sales. In the short term, enterprises can enhance operational stability by increasing the proportion of long-term agreements, using derivatives to hedge against price fluctuation risks, and controlling costs. In the medium term, they can improve their ability to withstand cyclical risks by extending the industry chain, integrating resources, and utilizing futures tools. Meanwhile, enterprises need to closely monitor policy and supply-demand changes and adjust their operational decisions in a timely manner," said Liu Huifeng.