Large coal prices rise against the trend

China Coal Energy issued a coal price policy in December, with the exception of the Pingtan Coal Group, which raised the price by 12 yuan/ton, and the remaining coal prices by 15 yuan/ton, and continued to implement the *sub-concession and large-scale preferential policies.

China Shenhua had previously announced the latest price for steam coal from ports in December. From Dec. 1 onwards, the price of steam coal in Shenhua in December was 15 yuan/ton higher than that in November.

A number of coal industry analysts pointed out that although the current coal demand as a whole sluggish, but with large coal companies such as Shenhua, China Coal, once again raised the December thermal coal prices, thermal coal prices will be further supported. Deng Xiao, a coal analyst, said that the recent rise in coal prices has improved the profitability of some coal companies. If coal prices can return to the level of 5,500 kcal thermal coal, 550 yuan/ton, the coal industry will resume profitability.

Or for coal power contract negotiations, the industry believes that the current supply and demand side of the domestic market has not been significantly improved, Shenhua and China Coal thermal coal prices in December rose again 15 yuan / ton, mainly for the upcoming coal power contract Negotiating momentum.

Deng Hao believes that since the launch of a series of coal rescue measures in late July, the price of Shenhua 5,500 kcal thermal coal has increased from the lowest of 475 yuan/ton in late July to 529 yuan/ton in December, an increase of 11.4%. In Shenhua, China Coal and other large mines to take the lead in restricting production and insured prices, the relevant authorities have restricted the number of imported coal companies to accept imported coal and other measures, the domestic coal price has continued to rise, and in the short term, it is indeed beneficial to the domestic coal industry.

Wang Xianzheng, president of the China Coal Industry Association, also stated at the 2015 National Coal Trade Fair that there are some positive phenomena in the current operation of the coal economy, coal production is under control, coal imports have begun to decline, and market prices have rebounded slightly. However, the current lack of growth in coal demand, high coal deposits, a large total import volume, the basis for continued recovery of coal prices is still not stable, the task of the coal industry out of difficulties is still very arduous.

Deng Wei believes that due to the beginning of heating in the north and the dry period of southern hydropower in November, the peak season for coal consumption will come. However, relative to the increase in the price of coal, the strength of coal demand recovery is not enough to support, and the downward pressure on coal will remain high for some time in the future.

According to the relevant person in charge of the Shenhua Group, after two consecutive gains of RMB 15/t in October and November, Shenhua’s sales in the two months were not satisfactory. According to Shenhua’s October 2014 production and operating data, Shenhua’s coal sales in October reached 34.7 million tons, a significant drop of 25.7% year-on-year.

A coal importer stated that the price advantage of imported coal relative to domestic coal has become prominent after domestic mines again raised prices by 15 yuan in December. In December, the CIF price for Shenhua 5,500 kcal coal to east China power plants was 554 yuan per ton, while in December, the Australian coal 5,500 calories had a cif price of 520 yuan per ton. The spread between the two reached 34 yuan per ton. If the relevant authorities do not introduce measures to further restrict the import of coal, imported coal with price advantage will once again grab the share of the domestic market.

Multiple positive incentives In the coal market to stabilize and improve the situation, from December 1 onwards, the formal implementation of coal resource tax ad valorem reform has also become the focus of the market. The specific tax rate is determined by the provincial government within 2%-10%. According to media reports, the coal resource tax rate reported by Shanxi Province is 8%.

Will coal resource tax reform reduce the burden on coal companies? Deng Hao believes that if we simply change from the original "quantity measurement" to "ad valorem price calculation", we estimate the current coal price level and the assumed 8% tax rate. About tons, ad valorem is more than 10 yuan / ton. "The key still depends on the state's clean-up situation."

The State Council executive meeting also made it clear that at the same time as the reform of the coal resources tax, it will promote “taxation of taxes and fees” to ensure that it does not increase the overall burden on coal companies. Under the stimulation of multiple favorable policies, coal stocks have been rising daily. This has also caused the capital to discuss whether the coal market will reach an inflection point.

In this regard, Qilu Securities Research Report believes that with the continued fermentation of policies to restore import tariffs and clearing taxes and fees, the coal fundamentals will continue to rise, the supply side will shrink, and demand in the busy season will increase.

Deng Wei analyzed that the coal price has reached an inflection point since July and prices have continued to rise since then. However, from the perspective of profitability of coal enterprises, if the coal price can return to the level of 5,500 kcal thermal coal, 550 yuan/ton, the coal industry can restore profitability.

CSC believes that the current coal stocks are still in the rebound trend since July. With the arrival of the winter season, considering the end of the coal game at the end of the year, coal prices are likely to rise in December, and coal stocks are expected to continue to rebound. However, from the aspect of downstream demand, since the power plant inventory is still at a high level, it is cautious about coal stocks after the peak season.