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China
In May-18, National Development and Reform Commission (NDRC) announced new measures to curb coal price, aiming to bring coal prices back to the reasonable range. The 9 key measures are listed as followed:
NDRC reiterated the reasonable coal price range (5,500 GAR) is between RMB500/tonne and RMB750/tonne and aimed to bring down spot price back to RMB570/tonne by 10-Jun.
Coal price resumed upward momentum
The unexpected surge in demand from thermal power (+7.8% YoY) was mainly from industrial sector (+7.2% YoY), shown in Figure 3. However, the domestic coal production remained flat YoY, shown in Figure 1. According to BPS-Statistics Indonesia, the total export volume amounted to 33.2mn tonnes (+0.68% YoY) on Apr-18. Meanwhile, General Administration of Customers of China disclosed that total coal import volume dropped by 10.1% YoY to 22.3mn tonnes during the same month. Hence, the undersupply resulted in domestic coal price rebounding beyond the rational range, shown in Figure 5.
Restriction on seaborne coal may relax
Following the new round of restriction on imported coal in Apr-18, more detailed cooling measures were imposed to prepare for the upcoming peak season. The new 9 measures were not new. Apart from the ramp-up in production, the rest were more towards medium to longer-term policy measures on coal market. The short-term target price of RMB570/tonne is achievable only when domestic production is able to fill current spike in demand or the authorities relax the restriction on imported coal again given the strong demand for thermal power will come soon. See Figure 6, port coal inventory continued to accumulate in May-18. We believe the authority is likely to relax their restriction on seaborne coal.
Coal counters monthly updates
Golden Energy and Resources (Target px: S$0.48 / BUY)
Geo Energy Resources (Target px: S$0.41/ BUY)
Investment action
We remain upbeat on the sector as we expect coal price (FY18e ASP 4,200 GAR: US$42/tonne, 1Q18 ASP 4,200 GAR: US$52.4/tonne) will be favourable for coal miners. Meanwhile, the ramp-up of production is still on track. We maintain BUY rating on coal sector.
Peer comparison
Coal reserve estimate was as of 2016
*Harum Energy: coal reserve estimate was as of 2009
**Baramulti Suksessaran: coal reserve estimate was as of 2012
Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.
The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.