Power coal will gain momentum in peak season

After the National Day holiday, the price of thermal coal fell sharply under the combined effect of favorable policies and negative demand from the downstream. With the advent of the consumer season, the rebound of thermal coal at the end of the year is still expected. The rebound is expected to be 530-540 yuan per ton before; the adjustment will be limited in the short term, and the strong support area will be 510-514 yuan per ton.

The policy is much better and not fully digested

The executive meeting of the State Council held on September 29 decided to implement the reform of the coal resource tax. From December 1, 2014, the coal resource tax was changed from quantity measurement to ad valorem, and the tax rate was set at 2% by the provincial government. - Within 10% of the specified range. It is expected that this policy will increase the cost of coal by RMB 12/t.

The Ministry of Finance announced on October 9 that from October 15, 2014, the temporary import tariff rates for zero-import of bituminous coal (mainly thermal coal), other coals (mainly brown coal), and briquettes other than anthracite and coking coal were eliminated. Restore the MFN tax rate. The policy is expected to increase the cost of imported coal to Hong Kong by 25-30 yuan/ton, which will inhibit the import of coal to a certain extent.

In addition, according to Shenhua's latest price for port steam coal announced on the evening of October 8, the prices of all types of coal were increased by RMB 15/t. This is Shenhua's third consecutive monthly increase in coal prices since August, and its price adjustment is far more than expected. Judging from the recently released relevant policies and past years of experience, it is expected that Shenhua’s continued coal price hikes in November will be a high probability event and will provide certain support for thermal coal prices.

Supply declines steadily in the busy season driving demand to climb

Since July, the government has issued a number of measures to control production capacity, requiring coal production to be reduced by about 190 million tons in the five months after 2014. According to statistics from the Coal Transportation and Marketing Association, in August 2014, the country’s total coal output was 302 million tons, a decrease of 0.98% year-on-year; in September, the country’s total coal output was 292 million tons, a year-on-year decrease of 7%. From January to September, the country’s total coal output decreased by approximately 1.3% year-on-year. Although production is declining, the government's goal of reducing production is far from being achieved. In the fourth quarter, the average monthly production reduction will exceed 50 million tons.

On the import side, the latest statistics from the General Administration of Customs show that China's coal imports reached 223 million tons in the first three quarters of 2014, a year-on-year decrease of 6.7%, and the decline further expanded. In September this year, China imported 21.16 million tons of coal, a year-on-year decrease of 17.76%, and the decline has narrowed. This was attributed to the fact that the price of coal in the domestic market fell more than foreign markets, and the spread at home and abroad narrowed. In the later period, with the increase of coal import tariffs, the import volume is expected to continue to decrease.

On the demand side, according to data from the National Bureau of Statistics, the electricity consumption of the entire society in September was 457 billion kwh, which was a year-on-year increase of 2.7%, and was 4.2% higher than that in August. From January to September, the total electricity consumption of the whole society was 4,095.9 billion kwh, which was an increase of 3.9% year-on-year. From January to September, the country's new power production capacity (formally put into operation) was 52.5 million kilowatts, of which 15.65 million kilowatts of hydropower and 25.8 million kilowatts of thermal power.

The traditional heating season in winter is approaching, and the electricity consumption of the entire society will continue to rise in the later period. However, due to the fact that heating in the north of the country has been delayed by about 10 days from previous years, the coal consumption season in 2014 will come later. In terms of demand for downstream power plants, the average daily coal consumption of the six major power plants along the coast of China has gradually increased since October. Although the number of days available for inventory is still relatively large, it is in a downward avenue. These factors will support the rebound of thermal coal at the end of the year.