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    Home > It is inappropriate to overlook aerodynamic coal

    It is inappropriate to overlook aerodynamic coal

    Echemi 2019-08-13


    The actual data show that the demand side is only weak in stages, and the overall electricity demand is not a problem. After the completion of the supply-side reform, the overall coal market profit will return to the average level, rather than the general loss as in 2015.

    Power Coal Weekline high consolidation, out of the head shape, triggering traders unlimited reverie for falling space, whether the actual basic situation supports this judgment? The trend of power coal is greatly influenced by the national policy. When we review the supply side reform of coal industry, there are two main lines in general: one is to dissolve excess production capacity and release high-quality production capacity; the other is to control coal price reasonably by encouraging the signing of the CPPCC price, establishing inventory system and importing control. That is to say, the goal of supply-side reform is not to force the reduction of output, but to transfer to large-scale high-quality production capacity; and to improve the pricing mechanism of "benchmark price + floating price" to reduce price fluctuations and stabilize power costs.

    Power coal rose sharply in 2016, and the market knows that it is related to coal supply side reform. Does the basic completion of coal supply side reform mean that the power coal will fall sharply? How to understand the impact of coal-related environmental policies? With the completion of supply-side reform, coal prices are now at a relatively high level, and the release of production capacity is inevitable. In 2015, global commodities entered the bottom of the bear market. With the withdrawal of small and medium-sized production capacity from the coal industry, the concentration of state-owned enterprises increased, and without the influence of external market, it is difficult for the whole industry to return to the overall loss of the industry in 2015, which should be returned to the average profit of the industry. Environmental protection policy will not have a great impact on overall production capacity, but a short-term means to regulate supply and demand, will not affect the long-term direction of power coal.

    From the perspective of policy, the power coal market should be weakening, and it is a process of constantly searching for the bottom. And because of the new coal pricing mechanism, the fluctuation range of power coal will be reduced.

    Let's look at the actual supply and demand situation. On the supply side, according to the data, from September 2018, the output of power coal continued to increase, and the output in the first half of this year was about 8% higher than that in the same period of last year, with a significant increase in the supply side. On the demand side, power coal is mainly used for power generation, and electricity consumption is affected by the overall economic situation. The global economic slowdown has been the consensus view of the market. Gold, treasury bonds and stocks all rebounded continuously, while crude oil and copper, which are closely related to actual production activities, continued to slump, confirming the view that the global economic situation is weakening. Is the real demand for domestic power coal very poor? Let's look at the specific data downstream of the power coal.

    According to the data, from the point of view of power generation and industrial power consumption, domestic electricity demand is still rising moderately, the growth rate has not been significantly reduced compared with previous years, and the demand side is actually not as bad as the market imagines. From the sub-structure of the reduction of monthly coal consumption in six power plants and the reduction of thermal power proportion in domestic monthly power generation, it can be seen that the demand for power coal is indeed decreasing, which will lead to the accumulation of coal stocks. This year, the substitution effect of hydropower is obvious, which can be evidenced by the increase of discharge from the Three Gorges Reservoir, but the long period of weather change is unpredictable, so we think that the demand side of power coal is in a normal and slightly weak state. In other respects, imported coal, as an important supply increment to suppress coal prices, will maintain a level control of the total imported coal in 2019, which will hardly affect the long-term trend of power coal. As an important part of the cost, we observe the coal tariff index of different domestic routes and find that the overall position is low except for seasonal factors. Moreover, global oil prices remain low and domestic freight rates will not change significantly.

    Under the relaxation of the coal policy, the output increased significantly, and the demand side was normal and slightly weak. Power coal as a whole is in an empty trend, where is the target position? I think it should be analyzed from the perspective of long-term bargaining and industry profits.

    The result of the reform of coal supply side is the increase of industry concentration and the enhancement of the state's control over coal price. The National Development and Reform Commission (NDRC) requires that the number of long-term associate coal of Enterprises above the scale should not be less than 75%. The benchmark price of Shenhua annual long-term associate coal of China is 535 yuan/ton, which should represent the reasonable price of coal. In terms of industry profits, we select the weighted return on net assets from the annual reports of all coal listed companies. The average return on industry in recent ten years is 8.5%, which is closest to the average return on industry in 2017. The corresponding futures face price in 2017 is 550 yuan per ton per year, which is a reasonable futures price under relatively reasonable industry profits, and is not far from the long-term covenant price. The actual data shows that the demand side is only weak in stages, and the overall demand for electricity is not a problem. After the completion of supply-side reform, the overall coal market will return to the average profit, rather than the general loss as in 2015. The author believes that the power coal will fall, but the range is limited.

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