Orient Securities
Yuan Xiaomei
The 7-day National Coal Contract Summary Meeting ended on January 17 in Guilin, Guangxi. In 2007, the national coal price generally rose as a foregone conclusion, with the contract price rising by an average of 30 yuan/ton nationwide, and the Shanxi coal price rising by 40 yuan/ton.
The sharp year-on-year increase in the aggregate price of coal contracts is in line with expectations and more in line with the national industrial policy guidance. Compared with the contract coal price rise of 20-25 yuan in the coal contract order meeting in 2006, the contract coal price rise in 2007 was more significant. The purpose of the national policy of taxation and price liberalization on energy resources is to achieve the purpose of energy conservation, consumption reduction and resource intensification through price mechanism transmission.
The downstream demand for coal remains strong. Recently, the seasonal demand for coal is strong, and the market coal price shows a rapid upward trend, and the coal price in many places has reached a new historical high. The installed capacity of power increased by 45 million kilowatts in the fourth quarter of 2006, and the growth of downstream demand, especially the demand for power, constitutes a strong support for coal demand.
Shanxi, as the largest coal transferring province, this significant rise in the coal contract price is of great significance. The coal enterprises led by Tongmei have shown considerable price negotiation ability and tacit understanding. Large coal enterprises have begun to reflect their pricing power in the market, and the industry has a strong ability to pass on policy costs.
The A-share market is worried about the rising cost of coal enterprises and the fluctuation of future supply and demand situation, ignoring the fact that the coal market price is rising, the industry concentration is rising, and the negotiation ability of coal enterprises is increasing, resulting in the continuous undervaluation of the coal sector relative to the entire market.
We believe that the coal industry is likely to repeat the pattern of early 2006. With the market's re understanding and evaluation of coal prices, the cost shifting ability and profitability of coal enterprises, the underestimation of coal enterprises' deviation from fundamentals will be corrected by the market.
Our overall rating of the coal industry has been upgraded from neutral to positive, and we suggest increasing our holdings in Datong Coal, Guoyang New Energy and Xishan Coal Power.
Re understanding of the cost pressure of the coal industry policy factors will promote the cost to rise significantly. At present, the state has fully implemented the paid use of coal resources in eight major coal producing provinces, including Shanxi Province, and has implemented the sustainable development policy pilot of the coal industry in Shanxi Province. It will comprehensively collect the coal sustainable development fund, the deposit for mine environmental governance and recovery, and the fund for coal mine conversion and development, plus the resource compensation fee, the price of mining rights (including exploration rights and mining rights) The extraction of safety expenses and the "two Tianjin and one subsidy" will increase the production cost of coal per ton by nearly 70-80 yuan.
The rise of costs does not necessarily lead to the decline of industry profitability. What determines the ultimate profitability of enterprises and industries is the extent to which costs can be passed on. Whether costs can be passed on depends on the market share of enterprises in the industry, changes in industry concentration and the resulting ability to regulate supply, The exuberance of downstream demand and the regulatory role of policies.
In a sense, the coal industry in 2007 is similar to that in 2006 Iron ore For the steel industry under the pressure of cost and capacity expansion, the actual profitability of the steel industry in 2006 was much more optimistic than many market participants expected.
The trend of the coal industry in 2007 is likely to repeat the history of 2006. Since the end of 2005, there has been concern about the coal cost and the supply and demand situation, but the confidence in the sustainability of the profitability of coal enterprises is insufficient.
However, the actual situation of the coal industry in 2006 is that the overall price has increased, the production capacity of large coal groups has been released steadily, the policy cost has been gradually transmitted to the downstream, the industry concentration has been continuously improved, the existence of policy adjustment factors has continued the supply and demand balance pattern, and the profits of coal production enterprises have maintained a stable growth.
In the early stage, some industry insiders believed that whether the coal price in the peak season of coal consumption can reflect the peak season market is an important indicator of whether the coal supply and demand relationship has reversed. The situation of the coal market in the fourth quarter shows that the pattern of supply and demand balance and slight tension has not been broken.
The downstream demand for coal remains strong. Recently, the seasonal demand for coal is strong, and the market coal price shows a rapid upward trend, and the coal price in many places has reached a new historical high. The installed capacity of power increased by 45 million kilowatts in the fourth quarter of 2006, and the growth of downstream demand, especially the demand for power, constitutes a strong support for coal demand. According to the prediction of relevant departments, the national coal demand in 2007 was about 2.5 billion tons, an increase of about 100 million tons, of which, the power industry added about 90 million tons of new units in 2007.
The policy requirements for the shutdown of small coal mines and non compliant coal mines constitute an orderly adjustment of production capacity. In 2006, Shanxi Province alone banned the closure of 4876 illegal mines, and the number of mines below the municipal level was reduced from 4397 to 3006, reducing 1391, with a reduction ratio of 31.6%, reducing the production capacity of 20 million tons per year. On the basis of 494 mines that have been determined to be closed and shut down in 2006, 500 mines will be further closed in 2007. All the mines that affect the safety of large state-owned mines and belong to the "16 types" specified by the state will be closed and will be completed in 2007.
Industry data shows that the growth of coal production capacity has entered a reasonable range. At present, the year-on-year growth rate of coal production is between 10% - 15%, and the tight supply and demand pattern of the market continues.
A more comprehensive investment opportunity in the coal industry is coming. A more comprehensive investment opportunity in the coal industry is coming. In the early stage, the coal industry was also significantly underestimated, but the market was extremely pessimistic about the industry expectations. Only a few companies with less cost pressure and better coal quality performed well, and the entire industry performed poorly. At present, we believe that a more comprehensive investment opportunity is coming due to the warming of the fundamentals of the entire industry and the digestion of uncertainties. The investment attraction of the whole coal industry has been enhanced under the background of rising market valuation level, industry fundamentals warming and negative factors digestion. The steady performance growth, a more complete industrial chain and the increasing ability to withstand the cycle make mainstream coal listed companies still the best target for investment.
The industry investment opportunities and A-share market of key companies are worried about the rising cost of coal enterprises and the fluctuation of future supply and demand, ignoring the fact that the coal market price continues to rise, the industry concentration continues to rise, and the negotiation ability of coal enterprises continues to increase, resulting in the continuous undervaluation of the coal sector for the entire market.
We believe that the coal industry is likely to repeat the pattern of early 2006. With the market's re understanding and evaluation of coal prices, the cost shifting ability and profitability of coal enterprises, the underestimation of coal enterprises' deviation from fundamentals will be corrected by the market. Our overall rating of the coal industry has been upgraded from neutral to positive, especially for listed companies dominated by steam coal and coking coal. It is recommended to increase our shareholding Datong Coal Industry 、 Guoyang Xinneng 、 Xishan Coal Power 。
Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
