Coal demand in the first half of 2013 may pick up

As the main downstream of coal, the increase in power generation and steel production in the first half of 2013 is a high probability event. Coal demand is expected to pick up. However, the current situation of oversupply of domestic coal is difficult to solve in the short term, which will create resistance to the expansion of the coal market.

I. Demand side: In the first half of 2013, coal demand is expected to pick up. Coal is China's main energy source, and it plays a dominant role in China's fossil energy resource structure. In the short term, this dominant position will not change. China's coal is mainly used for domestic thermal power generation and steelmaking. Since September 2012, as the overall macroeconomic stability has recovered, both power generation and steel production have improved. With the view of the Macro Strategy Group of the Research Institute of China National Securities (000750), we believe that the growth of electricity and steel production in the first half of 2013 will further increase, and demand in the coal market is expected to pick up.

Coal is China's main energy source and plays a dominant role in China's fossil energy resource structure. In the short term, this dominant position will not change. In the composition of energy consumption in China, coal has always occupied about 70% of the proportion. In 2010, total energy consumption was 325 million tons of standard coal, and coal consumption accounted for approximately 68.6%.

China's coal is mainly used for domestic thermal power generation and steelmaking. Most of the coal produced in China is used for domestic demand. The share of export coal is relatively small, and it has gradually declined in recent years. Among them, coal consumption in industrial production has always occupied an important position in China's total coal consumption, and it has remained above 94% year-round. Power generation and coking are the main uses of industrial coal, accounting for 50% and 15% of industrial coal.

Heavy industry is the main source of electricity for society: heavy industry, including chemical industry, iron and steel, building materials, non-ferrous metal smelting, etc. It is the most important source of social electricity consumption in our country, and the proportion of electricity consumption is about 60%.

The growth rate of power generation has remained low since the beginning of 2012, but it has obviously improved since September. Since the beginning of 2012, due to the slowdown in investment growth in China, the demand for steel, building materials, and non-ferrous metals has weakened. The growth rate of power generation has remained low since March. Since September, power generation data have improved noticeably. In November, the whole society used 413.9 billion kWh of electricity, an increase of 7.6% year-on-year, and the rate of increase has risen for two consecutive months. In November, the nation’s electricity generation amounted to 401.1 billion kWh, a year-on-year increase of 7.9%. The highest increase since March this year.

More than 90% of coke is used in the production of steel and is a necessary raw material for steel production. Therefore, coke production is directly related to steel production. Since September 2012, both steel production and coke production have shown a trend of bottoming out.

Demand in the coal market in the first half of 2013 is expected to pick up. Since September, as the overall macroeconomic stability has recovered, both power generation and steel production have improved. With the government's steady growth policy gradually exerting force, new urbanization, and the gradual implementation of railway infrastructure projects, investment will be transferred to the construction peak season after the spring starts, and the economic uplifting role will be further enhanced, with fiscal deposits and bank credits at the beginning of next year. With the launch of the fund, there will be a seasonal turn for the better. In the first half of 2013, electricity and steel production will further increase, and demand in the coal market is expected to pick up.

Second, the supply side: the production capacity is abundant, the impact of imported coal, inventory pressure is big. China is a big producer of coal, during the "Twelfth Five-Year Plan" period, the production capacity of China's coal companies will further increase, and production capacity is sufficient. Imported coal accounts for relatively small but rapid growth, and it has impacted the domestic coal market in recent years. The total coal inventory remains high, and the pressure to destock is large.

China is a big producer of coal. In 2010, China’s primary energy production totaled 2.99 billion tons of standard coal, and coal production accounted for approximately 77.4%. In the past decade, China’s coal production increased from 1.47 billion tons in 2001 to 3.52 billion tons in 2011, with an average annual compound growth rate of 9%. 80% of the world's coal production growth in the past decade is produced in China.

The production capacity of coal companies will be further enhanced. According to the "12th Five-Year Plan" for the development of the coal industry, the production capacity of coal enterprises in China will reach 4.1 billion tons per year in 2015, forming a large-scale coal enterprise of 10 million tons and 10 50 million tons, and the production of coal enterprises. The ability will be further enhanced.

Imported coal accounts for relatively small but rapid growth, and it has impacted the domestic coal market in recent years. China's coal imports in 2011 were 182 million tons, which was 91.7 times more than in 2001. From January to November this year, the net import of coal was about 245 million tons. Although the majority of China’s coal consumption still comes from its own production, the impact of imported coal on the domestic coal market cannot be overestimated. From the inventory data, the year-on-year growth in the total coal inventories since the beginning of the year, although it has decreased as compared to last year, remains high, indicating that the market is still under pressure to digest stocks.

At present, the domestic coal production capacity is ahead of construction, and the release of production capacity will slow in the future, creating resistance to the expansion of the coal market size. According to the calculation of wind, the current capacity of coal mines under construction and built in China is more than 4 billion tons, and the national coal consumption is about 3.5 billion tons. From the point of view of coal investment and capacity building, domestic coal production capacity is ahead of schedule, and production oversupply will not change in the short term. The release of production capacity is expected to slow down in the next three years, creating resistance to the expansion of coal market size.