Hard rock picks -- demand remains sluggish, thermal coal will continue to decline

　　 Domestic thermal coal prices remain weak, and the oversupply situation is difficult to change in the long term.

　　 Coal mine output increased seasonally in the first quarter. Overall, coal supply is sufficient. However, due to sluggish demand, domestic thermal coal prices will continue to decline.

　　 Thermal coal prices surged earlier, but the actual transaction prices were much lower than the quotations of coal companies. The annual long-term agreement negotiation has concluded, and the "fixed quantity, not fixed Price" model is still the main method for 2014 settlement. The fixed Price model predicted earlier was lost due to the large difference in target prices between buyers and sellers. Under the loose coal supply and demand situation, buyers have the initiative in market pricing, and future Price declines are inevitable.

　　 New capacity is gradually being released, and future supply will steadily increase.

　　 As of November 2013, the cumulative fixed asset investment in coal mining and washing reached 470.695 billion yuan, an increase of 1.12% year-on-year. It is expected that the total fixed asset investment in coal mining and washing in 2013 will remain basically the same as in 2012. From the comparison of the completed fixed asset investment and the newly added raw coal mining capacity in recent years, with the annual increase in fixed asset investment, the newly added raw coal mining output has also shown a significant upward trend. Therefore, judging from the completed fixed asset investment in coal mining and washing in 2013, the newly added raw coal mining capacity in 2013 is expected to remain at around 400 million tons, and the new capacity will be gradually released in 2014, which will put considerable pressure on market supply.

　　 Last year, the national raw coal production showed steady growth, and the sharp decline in Price caused most small and medium-sized coal mines to shut down, but the output of state-owned coal mines remained stable growth. However, since small and medium-sized coal mines are easy to mine, if the market is good, or the profit is higher than the cost, small and medium-sized coal mines can quickly resume production in a short period of time, which has a great impact on the overall supply elasticity of domestic coal.

　　 Import volume continues to grow, and corporate inventories increase.

　　 Due to the sharp drop in international coal prices, making imported coal cheaper and the reduction of import tariffs, China's coal imports have increased significantly in recent years, which has to some extent suppressed coal prices.

　　 In terms of social inventory, from the inventory situation of major state-owned key coal mines, the average inventory of state-owned key coal mines from January to November last year was 43.7355 million tons, and the average inventory for the whole year of 2012 was 37.241 million tons. In comparison, the average inventory of key coal mines last year increased by 6.45 million tons, reaching a historical high. The sharp increase in coal mine inventory further verifies the sluggish market conditions and sales difficulties in the domestic coal market this year. From the inventory situation of key coal enterprises nationwide in recent years, corporate inventories have continued to increase in the first quarter to the middle of the year. Therefore, with the continued high level of coal inventories, enterprises will face a major problem of destocking. Under the circumstances that downstream procurement enthusiasm has fallen, it is likely that situations such as Shenhua and China Coal taking the initiative to lower prices and promote sales in June and July last year will occur again.

　　 Reduce overcapacity, and future demand will decrease.

　　 According to the instructions of the State Council document, by the end of 2015, another 15 million tons of iron smelting, 15 million tons of steelmaking, 100 million tons of cement (clinker and grinding capacity), and 20 million weight boxes of flat glass will be eliminated. If it is calculated that the production of one ton of pig iron requires nearly one ton of thermal coal, the elimination of 15 million tons of pig iron will lead to a reduction in thermal coal demand of about 15 million tons. The production of one ton of cement consumes about 0.21 tons of thermal coal, so the elimination of 100 million tons of cement will reduce thermal coal demand by 20 million tons. If the plans of various levels of local governments to eliminate overcapacity are included, it is estimated that the downstream demand for thermal coal will be reduced by more than 50 million tons. This is only the direct consumption of thermal coal. If the elimination of backward production capacity in other industries is included, it will lead to a reduction in electricity consumption, which will have a significant impact on the downstream demand for thermal coal.

　　 In summary, in the first quarter, affected by the traditional off-season consumption, the procurement volume of thermal power plants was sluggish, and the weak trend of domestic thermal coal prices continued, and the oversupply situation is difficult to change in the long term. Among them, the newly added capacity of raw coal mining continues to grow, and the elimination of overcapacity will gradually shut down coal mines below 90,000 tons, and the overall impact is estimated to be around 500 million tons. However, compared with the serious overcapacity in China, the actual effect is limited. The coal mine output increased seasonally in the first quarter, and overall, the domestic coal supply in the first quarter was sufficient. Therefore, the situation of oversupply in the domestic thermal coal market will continue, and the Price of domestic thermal coal market will continue to decline in the first quarter due to seasonal effects.