Huaxin Securities: Supply and demand gap may gradually widen, the coal industry may usher in a new round of value reassessment.

Huaxin Securities released a research report stating that the domestic coal supply growth rate will significantly slow down, with domestic raw coal production expected to be 4.76 billion tons in 2024, showing a sharp decrease in growth rate. Xinjiang and Inner Mongolia regions will be the main providers of increased supply. Coal demand is rigid, with electricity support being the main consumption driver and significant growth in chemical demand. Considering the potential gradual widening of the coal supply-demand gap, the coal price central point is expected to move upwards. The firm covers the coal industry for the first time, giving a "buy" investment rating, and investors can focus on investment opportunities in companies such as China Shenhua Energy (601088.SH), Shaanxi Coal Industry (601225.SH), Yankuang Energy Group (600188.SH), Shanxi Coal International Energy Group (600546.SH), and Inner Mongolia Dian Tou Energy Corporation (002128.SZ). Key points from Huaxin Securities: Domestic supply growth rate gradually slowing down, Xinjiang and Inner Mongolia regions as main providers of increased supply Most of the global coal production is concentrated domestically, and the domestic supply growth rate is expected to slow significantly. In 2024, domestic raw coal production is predicted to be 4.76 billion tons, a year-on-year increase of 1.3%, marking a significant decrease in growth rate compared to the past five years' compound growth rate of 4.36%. Xinjiang and Inner Mongolia are the primary providers of increased supply, with contributions of 81 million tons and 66 million tons respectively in 2024. Looking into the future, Xinjiang's planned capacity increase is 72 million tons per year, and Inner Mongolia's planned capacity increase is a total of 132 million tons per year. On the other hand, due to strict measures and resource constraints, Shanxi's production is expected to decrease by 6.9% in 2024, with potential vulnerability in future supply. For overseas supply, coal imports are predicted to be 543 million tons in 2024, a year-on-year increase of 14.4%, although the growth rate is expected to decrease by 47.4% from 2023, indicating a slowing trend in coal imports. Demand is rigid, with electricity support being the main consumption driver and significant growth in chemical demand In 2024, domestic coal consumption is estimated to be 4.84 billion tons, a year-on-year increase of 1.7%, with the electricity industry accounting for 55% of the demand, remaining a core driver of consumption. Power industry coal consumption is expected to increase by 2.64% to 2.51 billion tons in 2024; strong growth is expected in chemical coal demand, with consumption increasing by 13.86% year-on-year; building material coal consumption is predicted to decrease by 5.05%, likely to narrow due to optimized real estate policies; in the metallurgical industry, coal consumption is forecasted to decrease by 4.07% due to declining pig iron production; with slowed growth rates, heating and other industries are still experiencing positive growth, with year-on-year increases of 5.66% and 6.75% respectively. In terms of export demand, coal and brown coal exports are expected to be 6.66 million tons in 2024, a year-on-year increase of 49.1%, indicating a growth trend. Supply-demand gap likely to continue widening, coal price central point expected to rise Apart from India contributing significant increases, other regions are experiencing a downward trend in production. According to IEA data, it is projected that India's power coal production will be 11.51, 12.07, and 12.64 billion tons in the years 2025-2027, with a compound growth rate of 4.9% over three years. As overseas coal capital expenditures gradually decrease, supply is expected to slow down. Domestically, stricter coal mine safety supervision in northern regions and decreasing coal mine reserves in the eastern and central regions have limited long-term coal production growth, along with constraints from dual carbon goals of peak carbon and carbon neutrality, resulting in longer production cycles for newly built coal mines, making it difficult for some additional capacity to be operational in the short term. It is predicted that there will be limited new coal mines commissioned domestically in 2025, with incremental capacity coming mainly from resource-rich regions such as Jinshan and Mongolia. The projected domestic power coal production for the years 2025-2027 is 40.50, 40.60, and 40.76 billion tons, with a compound growth rate of 0.21% over three years, and consumption is estimated to be 43.17, 44.51, and 45.89 billion tons over the same period, with a compound growth rate of 1.85%. The supply-demand gap is predicted to be -0.63, -1.50, and -2.29 billion tons respectively for the years 2025-2027, indicating a potential increase in the coal price central point. Risk warning Domestic economic growth falling short of expectations; downstream demand fluctuations due to global economic downturn; risks associated with large-scale coal imports and significant domestic production release; risks of substantial price declines, among others.