Recently, the State-owned Assets Supervision and Administration Commission of the State Council said at a press conference that it will further study the inclusion of market value management in the performance appraisal of the heads of central enterprises, and better return investors through market-oriented holdings, repurchase to stabilize expectations, and increase cash dividends. This measure clarifies the general direction of the market value management of central enterprises and provides guidance for the capital market.
As an important upstream energy industry, coal accounts for a relatively large proportion of state-owned capital. At the level of central enterprises, China Energy Group and China Coal Group are the two most important enterprises. At the level of local state-owned enterprises, each province has its own provincial state-owned coal enterprises and municipal and county-level state-owned enterprises.
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At present, more and more coal companies have begun to pay attention to market value management and have taken a series of measures to enhance the market value of enterprises. These measures include, but are not limited to, shareholder increases, share repurchases, and increased dividends. These initiatives have helped to boost investor confidence and increase market recognition and valuations of companies.
For the listed companies of central enterprises in the coal industry, such as China Shenhua and China Coal Energy, they not only have a high market share and brand influence in the coal industry, but also have strong profitability and stable cash flow. The market value management practices of these enterprises can provide reference for other enterprises.
In addition, as the country's attention to the energy industry continues to increase, coal companies will also face more opportunities and challenges. In this context, coal companies need to pay more attention to their own sustainable development and environmental responsibility, and actively explore new development models and business areas to achieve higher quality development.
Market value management is one of the important trends in the development of enterprises. For coal enterprises, by strengthening market value management, the market recognition and valuation level of enterprises can be improved, and strong support for the sustainable development of enterprises.
Overview of the coal industry
Energy can be divided into primary energy and secondary energy according to its basic form.
Primary energy, also known as natural energy, refers to energy sources that already exist in nature, such as coal, oil, natural gas, and hydropower. These energy sources have not undergone any processing and conversion, and can be directly used by humans to provide the required energy.
Secondary energy is an energy product obtained by processing and conversion of primary energy, such as electricity, gas, gasoline and hydrogen energy.
In the face of the current energy crisis and environmental problems, it is important to innovate primary and secondary energy sources. In order to better manage and utilize coal resources, China has formulated the China Coal Classification (GB/T5751-2009) standard, which divides coal into three categories and 17 sub-categories according to the degree of coalification and process performance.
Coal is classified by process:
Lignite, bituminous coal, and anthracite are the three major categories of coal, and their degree of coalification is ranked from low to high.
Bituminous coal is further subdivided into 12 sub-categories, including weak sticky coal, medium sticky coal, gas coal, gas fertilizer coal, fertile coal and 1/3 coking coal. Whereas, lignite is divided into 2 sub-categories and anthracite is divided into 3 sub-categories.
In terms of use, coal is mainly divided into two categories: coking coal and thermal coal.
On the mainland, coal is mainly used as thermal coal. Thermal coal is mainly used in areas such as power generation, locomotive propulsion, and boiler combustion to provide the power needed for various equipment.
Coking coal is a type of coal specially used for coke, which has good cohesiveness and a thick colloidal layer. Compared to thermal coal, coking coal has a special use and is mainly used in the coking process of the steel industry.
Coking coal resources in mainland China are relatively scarce, and future supply increments are limited. Since the majority of coal consumption is used for thermal coal, which accounts for 86%, the demand for thermal coal is very large. In order to meet this demand, we need to continue to increase the production and supply of coal, and at the same time pay attention to the processing and conversion of coal, and improve its utilization efficiency, so as to achieve sustainable energy development.
In addition, coal injection also plays an important role in ironmaking blast furnaces. It can be used as a substitute for some coke, as a fuel and reducing agent, helping to reduce the coke ratio and pig iron costs. Coal injection is mainly obtained by washing and sorting anthracite as raw material, and some bituminous coal can also be used as raw materials for coal injection, such as lean coal, lean coal and long-flame coal.
There are 14 large-scale coal production bases in the mainland, including Shendong, Jinbei, Jinzhong, Jindong, Shaanbei, Mengdong, Lianghuai, Yunnan-Guizhou, Jizhong, Luxi, Henan, Ningdong, Huanglong and Xinjiang bases.
In terms of coal quality, thermal coal pricing mainly focuses on calorific value indicators, among which coal in northern Shanxi, Shendong and northern Shaanxi has the highest calorific value. For coking coal, the main focus is on the cohesion index, ash and sulfur content, among which the coking coal quality in Jinzhong, Lianghuai, Jizhong and Henan bases is better. For anthracite, we can pay attention to the volatile matter, lump formation rate and sulfur content, among which Shanxi has the highest anthracite production and good quality.
Types of coal produced by the 14 major coal bases in China:
Source: Public information, Zhongtai Securities
The competitive landscape and leading combing of the coal industry
Since late August 2023, the rise in the coal sector has been mainly attributed to "the bottom of coal prices in the off-season being much higher than market expectations, rather than the expectation of a surge in coal prices".
Recently, due to the larger-than-expected contraction of domestic coal supply and the impact of overseas factors, coal prices have shown a slightly higher upward trend than market expectations, thus promoting the accelerated development of this round of market.
From a long-term perspective, coal companies are generally worried about the future prospects of the industry in the context of the energy transition and the "dual carbon" goals. Considering the long-term cost and huge capital investment required to build new coal mines, these enterprises are gradually less willing to reinvest capital in their traditional main business. This means that the number of new coal mines built on the mainland in the future will be limited.
At the same time, considering that the high profits of coal companies are expected to continue in the long run, and in the context of high cash flow, the dividend ratio is also expected to continue to increase. Therefore, the outstanding companies in the high-dividend and resource industries that are currently "abandoned" by the market are expected to become representatives of the slow bull market in the future.
Major thermal coal manufacturers include Shaanxi Coal, China Coal Energy, Huayang, Huaibei Mining and Lu'an Environmental Energy. In the long term, the core thermal coal hard assets include China Shenhua, Shanmei International, Yankuang Energy, Guanghui Energy and Jinkong Coal. In the coking coal sector, major players include Pingmei and Shanxi Coking Coal, while coke manufacturers include Shaanxi Black Cat, Antai Group and China Xuyang Group.
Since the reform and opening up, the mainland's thermal coal pricing mechanism has undergone an evolution from planning control to market-based pricing, and then to the new dual-track pricing. For coal companies with a high proportion of long-term sales, their profitability is still worth looking forward to. In the context of the downward movement of the market coal price center and return to a reasonable range, we are optimistic about the profitability of coal companies with a high proportion of long-term sales, and they still have high dividend attributes.
As a leading enterprise in the coal mining industry, China Shenhua's integrated business model of "coal + electricity + transportation + chemical industry" has hedged the impact of downward coal prices to some extent. As a local high-quality coal enterprise, Shaanxi Coal Industry accounts for about 80% of its total sales in long-term terms. After the completion of the Group's unlisted asset injection, its annual production capacity has increased significantly. #Coal##State-owned enterprise reform##Central enterprises##Article launch challenge##财经#
epilogue
The 14th Five-Year Plan emphasizes the principles of a modern energy system, with the primary focus on ensuring energy security and promoting green and low-carbon development. While vigorously developing non-fossil energy, it is also necessary to strengthen the safety guarantee of coal and give full play to the supporting and regulating role of coal power. This indicates that the mainland has entered a new stage of building a modern energy system during the 14th Five-Year Plan period, which is a critical period to lay the foundation for achieving the goals of carbon peak before 2030 and carbon neutrality before 2060.
In the context of "carbon peaking and carbon neutrality", new coal production capacity has begun to slow down after peaking in 2021-2022. The agency expects that in the next few years, the country's new coal production capacity will reach 503.18 million tons, an increase of about 11% compared with 2022. However, it is important to note that the actual production growth is likely to be smaller than the forecasted capacity increase, as the exit may not be considered, and the increase in capacity may not achieve 100% capacity utilization.
Recently, due to the frequent occurrence of coal mine accidents, the government's attention to coal mine safety production has increased. At the same time, the Spring Festival is approaching, and some small mines and private coal mines choose to suspend production and take a holiday, while large state-owned mines will focus on ensuring safe production. In response to this situation, coal mines have formulated plans for shutdowns, shutdowns and maintenance during the Spring Festival in accordance with the relevant government notices, so the supply of coal is expected to decrease slightly, and the market demand for coal will be suppressed to a certain extent.
All coal mines will formulate a work plan for suspension of production and maintenance during the Spring Festival in accordance with the guidelines and requirements of the "Emergency Notice of the Shaanxi Bureau of the State Mine Safety Supervision Bureau on Strengthening Coal Mine Safety Precautions during the Spring Festival and the Two Sessions", and the supply is expected to shrink slightly.
With the continuous development of the economy and the acceleration of industrialization, there is still potential for growth in coal demand in the long run. In order to meet future energy demand, the coal industry needs to strengthen technological innovation and safety management, improve production efficiency and safety, and actively explore the integration and development of renewable energy to achieve sustainable development.
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