Cathay Pacific Haitong: Coal supply elasticity narrows and prices are rising steadily

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that on August 10, the Development and Reform Commission and the National Energy Administration officially released the “15th Five-Year Plan for the Development of the Coal Industry”. The supply logic was changed from “insuring supply and increasing production” to “controlling increments, cleaning up ineffective stocks, and strong reserves”. The focus is on supply quality and supply resilience construction. The demand side sets the tone for coal consumption to peak, high platforms soft landing, refusing cliff-style coal cuts, and the demand chassis is resilient. In the medium to long term, it is beneficial for the coal price center to maintain a reasonable range, and the profits of coal companies will rise definitively.

Cathay Pacific Haitong's main views are as follows:

Incident: On August 10, the Development and Reform Commission and the National Energy Administration officially released the “Fifteenth Five-Year Plan” for the development of the coal industry. The core conclusion: Under the main line of “establish first, then break”, it is clear that strict total production capacity control and zoning classification are used to promote the exit of backward and ineffective production capacity, “one account” for production capacity and strict replacement, priority protection for baselization and integration projects, and improving price range regulation and long-term coordination as a starting point to substantially raise supply-side compliance and safety thresholds, narrowing the medium- to long-term supply flexibility into probability, and cooperating with price and reserve systems The pivot is more stable and fluctuating Slowing down.

The supply logic was changed from “insuring supply and increasing production” to “controlling increments, cleaning up ineffective stocks, and strong reserves”. The focus is on supply quality and supply resilience construction. The 14-5-year guarantee cycle is relatively flexible in order to cope with the gap, nuclear expansion, and integration of technical reform ports. Some small and medium-sized mines can expand production capacity through technical reform; this plan uses negative lists to catch low-quality increases at the source, and on the other hand, officially includes “ineffective production capacity” in the exit category, promoting the actual cancellation of long-term production stoppages and construction of zombie mines, reducing the market's “nominal production capacity illusion” (in the past, when coal prices were rising, the market always traded supply expectations for a large number of zombie mines to resume production.).

“Start first, then break” is the supreme principle of withdrawal, put an end to sporadic shutdowns, and also refuses to resume production and increase production in a disorderly manner, and iron out the risk of large fluctuations in supply. “Start first, then break down, and coordinate regional supply guarantees” means that the pace of coal mine withdrawal must match the continuous progress of advanced production capacity, and there will be no pulse-price increases caused by centralized shutdowns; at the same time, low-quality mines will not resume production in a disorderly manner to liberalize supply guarantees. In the past, the probability of the industry collectively exceeding internal production volumes and the deep decline in coal prices has declined, and the bottom of coal prices has been strengthened.

Tighten new restrictions, or respond to the policy's anticipated reduction in the scale of new production capacity during the 15th Five-Year Plan period. The plan is to improve and improve coal industry policies, and strict industrial entry requirements. It is proposed that in principle, Jinshan, and Mengxin will not approve new construction/renovation and expansion below 1.2 million tons, superimposing multi-dimensional restrictions on disaster conditions, mining depth, and ecological red line; in the future, additional production capacity will need to simultaneously meet the multiple conditions of a production capacity account, capacity replacement, and negative entry list. Furthermore, the proposed plan to establish a production capacity reserve of 100 million tons/year is clearly lower than the long-term target of 300 million tons proposed in 2024. Theoretically, reserve capacity is 30% of the newly built production capacity, or the response policy has reduced the scale plan for additional production capacity in the medium term.

The demand side sets the tone for coal consumption to peak, high platforms soft landing, refusing cliff-style coal cuts, and the demand chassis is resilient. Coal power is shifting to a regulatory support power source, and the wind and light still need to be backed up intermittently; coal is used in industry and coal chemicals to form structural support. Consumption is not declining rapidly, but fluctuates on a high platform, and the underlying logic of a tight balance between supply and demand has been strengthened.

Investment advice: In the medium to long term, the coal price center will maintain a reasonable range, and the profits of coal companies will rise definitively.

Risk warning: The macroeconomy fell short of expectations, and domestic production cuts fell short of expectations.