Summary of Conference Call on Coal Industry Insights Industry Overview - **Industry**: Coal Industry - **Key Year**: 2025 and 2026 Core Insights and Arguments 1. **Supply and Demand Dynamics**: - In 2025, coal consumption is expected to experience its first negative growth in nine years due to the substitution effect of renewable energy. However, in 2026, demand for electricity coal is projected to rebound driven by increased electricity demand and the cancellation of renewable energy subsidies, leading to an overall increase in total consumption [1][2][4]. 2. **Supply Shift**: - The supply side is transitioning from "internal competition" to "compliance" starting in the second half of 2025, with a focus on curbing overproduction. By 2026, production will normalize according to approved capacity, limiting the potential for supply increases [1][3]. 3. **Import Challenges**: - Indonesia plans to reduce its coal production to 600 million tons in 2026, a decrease of nearly 200 million tons, and will reinstate export tariffs. This, combined with a weakening domestic coal price advantage, will significantly reduce the marginal impact of imported coal on the domestic market [1][7][8]. 4. **Long-term Contract Pricing**: - The National Development and Reform Commission (NDRC) is studying adjustments to the long-term trading price range to reflect rising costs associated with safety, environmental protection, and automation investments. This is expected to raise market price limits and the industry's profit baseline [1][6]. 5. **Profitability and Industry Positioning**: - Coal companies are expected to see a significant profit decline in 2025, with total profits dropping by approximately 30%. By 2026, the role of coal is shifting from a primary energy source to a backup energy source, leading to a tighter balance between supply and demand and potential price increases [1][5]. Additional Important Insights 1. **Chemical Coal Demand**: - While coal use in metallurgy and construction continues to decline, the growth in chemical coal usage, particularly in regions like Xinjiang and Inner Mongolia, is expected to partially offset the decline in traditional industrial coal consumption [2]. 2. **Price Trends**: - The price of thermal coal, as indicated by the CCTD 5,500 kcal index, fell from approximately 770 RMB/ton at the beginning of 2025 to around 620 RMB/ton by June, before rebounding to about 803 RMB/ton by November. By year-end, around 40% of coal companies faced losses, particularly smaller private mines [5]. 3. **Regulatory Environment**: - The regulatory focus is shifting towards normalizing enforcement of production limits and ensuring compliance with approved production capacities. This is expected to stabilize the supply side and maintain a focus on supply security [6]. 4. **Impact of Geopolitical Events**: - The escalation of tensions in the Middle East could influence coal prices through energy substitution effects and increased shipping costs. Short-term price movements may be driven by market sentiment, while long-term impacts are expected to stabilize as energy issues return to negotiation rather than conflict [10]. 5. **Post-Festival Production Resumption**: - The pace of production resumption after the 2026 Spring Festival is expected to be better than in 2025, with private coal mines showing a stronger willingness to resume operations due to stable coal prices [11]. This summary encapsulates the key points discussed in the conference call regarding the coal industry, highlighting the anticipated changes in supply, demand, pricing, and regulatory frameworks.

Group 1 - Coal stocks showed strong performance in the afternoon, with notable increases in share prices for companies such as Qinfa (up 11.68% to HKD 4.11), Power Development (up 8.18% to HKD 1.72), and Yanzhou Coal (up 4.25% to HKD 11.52) [1] - Huayuan Securities reported that coal prices have shown a quarterly downward trend since 2023, with a potential price rebound expected in Q4 2025, leading to improved performance in the coal sector [1] - By early January 2026, some provinces are pushing for the exit of certain coal supply capacities, which could significantly improve coal supply-demand dynamics and reduce coal inventories [1] Group 2 - Zheshang Securities highlighted a reversal in the global coking coal supply-demand balance, with declining production and increasing demand, which is expected to drive prices up [2] - Coking coal prices have increased by CNY 269 per ton compared to the average price in Q1 2025, while production costs for coking coal companies are gradually decreasing [2] - The net profit per unit of high-quality coking coal companies is significantly lower than that of thermal coal companies, indicating an underappreciation of the scarcity of coking coal resources [2]

Core Viewpoint - Huabei Mining (600985) expects a net profit of approximately 1.495 billion yuan for 2025, representing a year-on-year decline of about 69.21% due to decreased coal production and sales, as well as a weak coal price environment [1] Group 1: Financial Performance - The projected net profit for 2025 is around 1.495 billion yuan, which indicates a significant decline compared to previous years [1] - The expected decline in net profit is approximately 69.21% year-on-year [1] Group 2: Operational Factors - The company anticipates a decrease in both coal production and sales volume for 2025 [1] - The domestic coal supply and demand situation is expected to remain loose, contributing to the weak performance [1] Group 3: Market Conditions - Coal prices are expected to operate weakly, leading to a notable decline in the prices of the company's coal products compared to the same period last year [1] - The combination of lower production, sales, and prices is expected to significantly impact the company's main business profits [1]

Investment Rating - Moody's downgraded the family rating of Shandong Energy and its subsidiary Yanzhou Coal from Ba1 to Ba2, with a stable outlook [4][5]. Core Insights - The downgrade reflects the high leverage, rising debt, and weakening profitability of Shandong Energy, mirroring the structural challenges faced by the coal industry amid energy transition and cyclical downturns [1][4]. - Despite the downgrade, Shandong Energy maintains a strong resource endowment and financing capability, with overall debt risk being manageable [1][49]. Summary by Sections Rating Adjustment Event Review - On August 1, 2025, Moody's downgraded Shandong Energy's corporate family rating from Ba1 to Ba2, with a stable outlook, and also downgraded the baseline credit assessment (BCA) of Shandong Energy and Yanzhou Coal [4][5]. Shandong Energy Analysis - Shandong Energy is the largest coal enterprise in Shandong Province, with a significant portion of its revenue derived from coal trading and other businesses [7]. - The company has substantial coal reserves totaling 889.74 billion tons, with a recoverable reserve of 177.44 billion tons, ranking fifth among coal enterprises [7]. Profitability - Shandong Energy's net profit peaked at 24.041 billion yuan in 2022 but fell to 15.203 billion yuan in 2024 due to declining coal prices [8][11]. - The gross profit margin decreased from 16.41% in 2022 to 9.81% in 2024, significantly below the industry average of 24.17% [8]. Debt - The asset-liability ratio of Shandong Energy rose from 66.98% at the end of 2020 to 72.84% by the end of 2024, exceeding the industry average [15]. - As of June 2025, Shandong Energy's total interest-bearing debt was 447.58 billion yuan, with a short-term debt ratio of 39.22% [15]. Cash Flow - Operating cash flow showed significant volatility, with a net inflow in 2021-2022 due to rising coal prices, but a decline in 2023 as prices fell [24]. - The company plans to invest 84.80 billion yuan in 2025, indicating ongoing capital expenditure pressures [29]. Contingent Liabilities - As of June 2025, Shandong Energy had external guarantees totaling 44.268 billion yuan, with a significant portion related to its investment in Yulong Petrochemical [30]. External Support - Shandong Energy benefits from strong government support in various aspects, including resource acquisition and project approvals [31]. Coal Industry Trends and Influencing Factors Coal Prices - Coal prices have been on a downward trend in 2025, averaging around 80% of the 2024 levels, with some recovery observed in July due to production cuts and increased demand [33]. Demand Side - The rapid development of clean energy has significantly suppressed the demand for thermal coal, with clean energy capacity surpassing thermal power for the first time in August 2023 [35]. Supply Side - Coal production has been increasing, leading to high inventory levels and a decline in capacity utilization, which fell to 69.30% by June 2025 [39]. Conclusion - The downgrade of Shandong Energy's rating is a reflection of the cyclical downturn in the coal industry and individual operational challenges, yet the company retains strong resource advantages and financing capabilities [49]. - The coal industry faces a soft demand environment, but government policies may provide support for coal prices in the near term [49].

Group 1 - The core viewpoint of the report indicates that in 2025, coal demand is expected to remain weak, but policy interventions will help regulate supply and improve the industry supply-demand balance [1] - In 2026, both supply and demand sides are anticipated to show potential, with the price of thermal coal expected to fluctuate between 650-850 RMB/ton, centered around 750 RMB/ton [2] - The report highlights that the domestic coal production peak is expected to be around 4.8 billion tons, with limited growth in production capacity due to policy focus on safety and stability [2][3] Group 2 - In 2025, domestic raw coal production remained high with a year-on-year increase of 5.4%, while coal consumption only saw a slight increase of 0.4%, leading to a significant drop in coal prices from 763 RMB/ton to 610 RMB/ton [1] - The report notes that the demand for thermal coal is expected to recover in 2026, with a positive growth outlook for thermal power generation, while non-electric demand from the chemical sector is likely to maintain growth [2] - For coking coal, despite limited growth in domestic resources, the price is expected to rise by approximately 100 RMB/ton in 2026 due to policy impacts and overall industry improvement [3]

Core Viewpoint - The coal industry is expected to maintain a weak supply and demand balance in 2026, but coal prices may perform better than in 2025 due to policy support, leading to improved profitability and dividend expectations for listed companies [1] Supply and Demand Analysis - In 2026, policies and import factors may limit domestic supply, with a projected net increase in coal production of 28 million tons, corresponding to a growth rate of approximately 0.6% [2] - Domestic coal production is expected to decline year-on-year from July to November 2025 due to stricter safety regulations and overproduction checks [2] - Coal imports are anticipated to decrease by 19 to 20 million tons in 2026, influenced by production cuts in countries like Indonesia and domestic "anti-involution" policies [2] Demand Dynamics - The growth in demand is expected to be limited, with a slight year-on-year decrease in thermal coal consumption of about -0.2% in 2026 [3] - The construction and steel sectors will continue to be affected by real estate activity, leading to a decline in coal consumption, although the rate of decline is expected to narrow [3] - Chemical industry coal consumption may see a growth rate of 6% due to new coal chemical projects and widening oil-coal price differentials [3] Price Outlook - The supply pressure is expected to ease, allowing for a slight upward adjustment in coal prices, with a projected increase of 5 to 7% in the average domestic coal price for 2026 [4] - The bottom of coal prices is expected to rise due to policy support and improvements in the global coal supply-demand balance [4] Investment Strategy - The anticipated rise in coal prices is expected to improve the performance of listed companies, with dividend yields likely to see a slight increase if dividend ratios are maintained [6] - Investment opportunities are suggested along three main lines: 1. Long-term holdings in dividend-paying thermal coal leaders [6] 2. Companies benefiting from capacity expansion and favorable policies [6] 3. Companies with high elasticity that may benefit from price expectation discrepancies [6]

Core Viewpoint - The coal sector has confirmed its cyclical bottom in Q2 2025, with a reversal in supply-demand dynamics and sufficient release of downward risks [1]. Group 1: Coal Price Dynamics - The core driver of coal price trends is the supply-demand structure, with the current price drop having limited room for further decline, expected to bottom out at 680-700 RMB/ton [1]. - In November, coal prices are projected to rebound to over 800 RMB/ton, with imports slightly increasing by 5.9% to 44 million tons, while domestic supply is expected to recover to 430 million tons, although still down year-on-year [1]. Group 2: Seasonal Demand and Supply - As of December 19, 2025, the price of Q5500 coal at Huanghua Port is 721 RMB/ton, down 42 RMB/ton (-5.5%) from the previous week, indicating a stable domestic supply and reduced imports [2]. - The demand for coking coal is expected to improve significantly during the off-season, with the average daily iron output showing a slight decrease, suggesting that demand may remain strong [2]. Group 3: Industry Review - As of December 19, 2025, the price of main coking coal at Jingtang Port is 1700 RMB/ton, up 50 RMB/ton (3.0%), while the inventory of coking coal across three ports is 2.797 million tons, down 7.1% [3]. - The offshore price of Q5500 coal at Newcastle, Australia, has decreased by 3 USD/ton (-3.8%), with domestic coal being 19 RMB/ton cheaper than imported coal [3].

Investment Rating - The report maintains a positive investment outlook for the coal sector, recommending a focus on key players such as China Shenhua Energy, Shaanxi Coal and Chemical Industry, and China Coal Energy, while also keeping an eye on Yanzhou Coal Mining and Jinneng Holding [3]. Core Insights - The coal price is expected to stabilize, with a bottom range projected between 680-700 RMB/ton. The demand is currently at a median level compared to the past five years, and port inventories are showing a downward trend. The report anticipates a rebound in coal prices to over 800 RMB/ton by November [3][4]. - The coal sector is believed to have reached a cyclical bottom in Q2 2025, with a reversal in supply-demand dynamics. A new upward cycle for coal and downstream thermal power demand is expected to begin in the second half of 2026 [3][4]. Summary by Sections Coal Price Trends - As of December 19, 2025, the price of Q5500 coal at Huanghua Port is 721 RMB/ton, down 42 RMB/ton (-5.5%) from the previous week. The price of Q5000 coal at the same port is 620 RMB/ton, also down 42 RMB/ton (-6.3%) [6][12]. - Domestic coal prices are generally declining, while international prices are mixed, with Newcastle coal prices showing a slight increase [41][49]. Supply and Demand Dynamics - Domestic coal supply remains stable, with imports expected to decrease. The report notes that the demand for coal is improving significantly during the off-peak season, with Q3 profits anticipated to rebound [3][4]. - As of December 19, 2025, the total inventory of coking coal at three major ports is 279.7 million tons, down 7.1% from the previous week [58]. Long-term Contracts and Pricing - The annual long-term contract price for Q5500 coal at Northern Ports is 694 RMB/ton, reflecting a month-on-month increase of 10 RMB/ton (1.5%) [34]. - The report indicates that the long-term contract prices for coking coal have remained stable compared to the previous week [59]. Key Market Events - The report highlights significant developments in coal transportation infrastructure in Inner Mongolia, which is expected to enhance coal logistics efficiency and capacity [81]. - It also notes that coal prices have continued to decline in early December, with various types of coal experiencing price drops [81].

Group 1 - The domestic coal market in China has been experiencing a loose supply-demand situation since December, leading to a continuous decline in coal prices, with the price of Shanxi Datong Q5500 thermal coal dropping by 40 RMB/ton to a range of 615-655 RMB/ton as of December 5, representing a decrease of 5.93% from the end of November [1][3] - The supply side remains stable, with major coal mines maintaining production levels and private coal mines resuming operations, resulting in an overall sufficient supply of coal in the market [3] - Demand from coal-consuming enterprises is weak, as they are resistant to high prices and primarily meet just-in-time needs, leading to limited speculative demand from traders, which further contributes to the downward pressure on coal prices [3] Group 2 - Coal inventory at the three northern ports has been steadily increasing, reaching 26.75 million tons as of December 5, an increase of 1.49 million tons or 5.9% from the end of November, which supports coastal coal demand [4] - Despite the increase in coal inventory, the expectation of tightening supply in the latter half of December may limit the inflow of coal resources to the ports, leading to a potential decrease in inventory levels [4] - The price advantage of imported coal over domestic coal remains significant, with Indonesian Q3800 thermal coal being 68 RMB/ton cheaper than domestic coal, leading to continued high levels of imports to supplement domestic supply [4] Group 3 - As coal prices continue to decline, some traders may begin to show interest in bottom-fishing, while non-electricity sector enterprises may see improved production enthusiasm due to lower coal costs, potentially increasing coal demand [5] - The electricity sector is expected to see an increase in coal consumption as temperatures drop and power plant loads rise, with the operating rate of major power plants in Shandong at around 78%, indicating room for improvement [6] - Overall, the supply-demand situation in the domestic coal market may shift from loose to tightening, with coal prices expected to stabilize after a period of decline, likely around December 15 [6]

Core Viewpoint - The domestic coal market in China has been experiencing a continuous decline in prices since December, influenced by a loose supply-demand balance, but there is potential for stabilization after the price drop as production tightens [1][6]. Supply Side Analysis - As of early December, major coal mines in China maintained stable production, and private coal mines that had paused production resumed operations, leading to an overall sufficient supply of coal [3][4]. - Coal inventories at major transfer ports have been steadily increasing, with the inventory at the three northern ports reaching 26.75 million tons by December 5, an increase of 1.49 million tons or 5.9% from the end of November [4][5]. - The expectation is that coal production may initially increase but will likely decrease as the month progresses due to heightened safety awareness and completion of annual production tasks [4][6]. Demand Side Analysis - Demand from coal-consuming enterprises has been weak, with companies reluctant to purchase at high prices, primarily meeting only essential needs [3][5]. - The trading atmosphere has been subdued, with market participants showing low willingness to trade, leading to a lack of effective support for the market [5]. - However, as prices continue to decline, there may be an increase in speculative buying from traders, and the demand from the power generation sector could improve as temperatures drop, leading to higher electricity loads [5][6]. Future Outlook - The coal price is expected to experience a weak adjustment before stabilizing, influenced by the anticipated tightening of the supply-demand balance [4][6]. - The timeline for these changes is projected to occur around December 15 [6].