Changjiang Securities·2025-12-24 11:41Core Insights - In 2025, coal prices significantly declined, leading to a return of sector profitability to the lowest levels in the past decade. However, the outlook for 2026 suggests potential demand improvement and limited supply capacity utilization, which may lead to a recovery in coal price levels [2][5][6]. - The report emphasizes that with a clear supply-demand improvement and the presence of both defensive and offensive investment opportunities, the likelihood of success for selected stocks is high. If demand is strong and coal prices improve beyond expectations, attention should be given to currently undervalued stocks with low liquidity and lower profit margins [2][7]. Industry Overview - The coal industry faced a challenging year in 2025, with thermal coal prices dropping from 855 CNY/ton in 2024 to 697 CNY/ton, an 18% decrease. The profitability of the sector fell to the 30th percentile of the past decade due to weak demand driven by warm weather and sluggish manufacturing electricity consumption [5][16]. - Coking coal prices also saw a significant decline, dropping 26% from 2024's 2022 CNY/ton to 1502 CNY/ton, with profitability at the 10th percentile of the past decade. This was primarily due to strong supply, with a 1.5% year-on-year increase in coking coal supply in the first three quarters of 2025 [5][16]. Demand and Supply Dynamics - For thermal coal in 2026, demand improvement is anticipated, with limited supply growth expected. The report identifies three key questions regarding market resilience: whether negative growth in thermal power will become the norm, if domestic supply can be controlled, and whether rising coal prices will increase imports [6][30]. - The report suggests that the central government's focus on controlling "involution" competition will continue to limit supply growth in 2026, despite some new production capacity coming online. Long-term resource depletion may also exert upward pressure on domestic coal prices [6][30]. Investment Recommendations - The report advocates for investment in the coal sector in 2026, highlighting the potential for a bottom reversal. It suggests that the timing for investment should align with capital flows, particularly in the first quarter when there is often a demand for increased allocation to dividend-paying sectors [7][30]. - Recommended stocks include Yanzhou Coal Mining Company and China Shenhua Energy, which are expected to benefit from a recovery in coal prices to a range of 750-800 CNY/ton. Additionally, stocks with significant growth potential and low valuations, such as Huayang Co. and Jinkong Coal Industry, are highlighted as potential targets if demand and price improvements exceed expectations [7][30].