Investment strategy of China's coal industry in th

Investment strategy of China's coal industry in the second quarter of 2008

in January, the national raw coal output increased by 3.2% over the same period last year, of which the growth rate of state-owned key projects was significantly higher than the national level, at 5.1%. At the same time, due to the implementation of power coal rush, the national coal railway traffic volume hit a record high, and the year-on-year growth rate continued to rise, reaching 7.7% month on month. The cumulative sales of coal in key state-owned coal mines increased faster than the output, reaching 7.5%. In February, the average price of coal traded in the national market was still rising rapidly, reaching 471.9 yuan/ton

in the second quarter, the coal demand entered a relatively low season, and the tight supply of power coal tended to ease. The integration of the coal industry will have a positive impact on the balance of coal supply and demand. The increasing demand of downstream industries and transportation bottlenecks still make the coal supply in a tight situation. The continuous high international oil prices and the gradual implementation of coal to liquid and coal chemical projects will increase the demand for coal to a certain extent. The rapid rise of international coal prices caused by tight supply will gradually affect the domestic market

in the first quarter of 2008, the coal industry performed better than the Shanghai and Shenzhen 300, and the coal index increased by about -8.50%, higher than the -19.97% increase of the Shanghai and Shenzhen 300 index in the same period. In the first quarter, the three stocks with the largest increase were Jinniu energy, Panjiang shares and international industry

maintain the industry investment rating as "attractive". As China is still in the high-speed period of economic development, the sustained and rapid development of industry and the continuous improvement of urbanization have generated a large demand for energy, so we maintain the industry investment rating as "attractive"

it is suggested to pay attention to the companies with low P/E ratio in the following categories of companies. The investment opportunities in the second quarter still came from companies that acquired assets, extended the coal chemical industry chain, and increased profitability due to price increases, such as China Shenhua, Datong coal industry, China coal energy, coal gasification, Lanhua Kechuang, Jinniu energy, Yanzhou coal industry, Kailuan shares, etc

I. outlook on the operation trend of the coal industry in the second quarter of 2008

1. The coal demand has entered a relatively low season, and the tight supply of power coal tends to ease

in the first quarter, due to the poor transportation caused by a wide range of rainy and snowy weather in southern China, coupled with the superposition of tight transportation capacity in spring and peak coal consumption in winter, the coal supply was extremely tight, and southern power plants were frequently in emergency. Through the efforts of all parties to promote the rapid and sustainable development of China's additive manufacturing industry, the inventory of power plants is gradually increasing, and the production tends to be normal on the whole. After the beginning of the second quarter, the national temperature began to rise, the heating period in the north gradually ended, the increase in water from the South gradually restored the hydropower output, and the thermal power units were shut down for maintenance. These factors led to the gradual weakening of the demand for power coal, the supply and demand of coal will enter a relatively low season, and the tension in power coal supply tends to ease and return to normal

2. The integration of the coal industry will have a positive impact on the balance of coal supply and demand

the national development and Reform Commission, the Ministry of land and resources, the State Administration of work safety and other competent departments recently issued a notice that from March to may, the research team creatively utilized the significant difference in carbonation temperature between MOF materials and glucose molecules to carry out actions to rectify and regulate the order of mineral resources development, focusing on investigating and dealing with illegal acts such as undocumented exploration and mining, ultra-level and cross-border mining. This fully shows that the country is steadily promoting the strategic restructuring of the coal industry. The establishment of the national energy administration will further promote the integration of the coal industry and reduce the constraints encountered in the process of enterprise integration, which will help to improve the concentration of the coal industry, strengthen the control of the coal industry over supply and demand and prices, and provide a strong guarantee for the long-term stable operation of coal prices

3. The increasing demand of downstream industries and transportation bottlenecks still make the coal supply in a tight situation

in 2007, with the sustained and rapid development of China's economy, the growth rate of key coal consuming industries such as electric power, metallurgy and building materials was faster than that of coal production. According to the current situation, it is expected that this situation will continue in 2008. Coupled with the limited growth of transportation capacity this year, coal production will still be restricted by the bottleneck of relatively insufficient railway transportation capacity. Therefore, it can be expected that coal prices will remain high this year

4. The continued high international oil prices will increase the demand for coal to a certain extent

in March, the international oil price hit a new high, breaking the $110 mark, while China's crude oil imports are still increasing. According to the latest data from the General Administration of customs, China's total crude oil imports in the first two months reached 28.23 million tons, an increase of 9.5% year-on-year; The import volume was 18.3103 billion US dollars, a year-on-year increase of 77.7%. With the international oil price continuing to be high, coal, which is also a fossil resource, has received renewed attention because of its relatively low price. According to the International Energy Outlook report released by the U.S. energy information administration, coal will be the fastest growing energy in the world in the future, with an average annual growth rate of 2.2%

5. The gradual implementation of coal to liquid and coal chemical projects will increase the demand for coal

in consideration of energy economy and security, China has started and planned to build a number of coal to oil and coal chemical projects. According to China's medium and long term development plan for coal chemical industry (Exposure Draft), by 2010, 2015 and 2020, China's coal to liquid production scale will grow to 1.5 million tons, 10 million tons and 30 million tons of coal to liquid production; The annual output of methanol will reach 16million tons, 38million tons and 66million tons respectively; The annual output of coal to olefins is 1.4 million tons, 5 million tons and 8 million tons respectively. These will generally be made of special steel, aluminum alloy and other materials, which will generate new demand for the coal market

6. The rapid rise of international coal prices caused by tight supply will gradually affect the domestic market

from the perspective of the trend of international coal prices, the spot trading price of BJ coal in Australia in 2007 exceeded $90/ton in December. Since this year, the international coal price has exceeded $130/ton for many times, with a huge increase. The reason is that Australia and South Africa, the main coal suppliers, are constrained by the lack of infrastructure, and their output is difficult to increase significantly. In order to meet their growing demand, China and Indonesia are also gradually reducing exports. The situation of supply in short supply leads to the fact that international coal prices are still rising in the long run, and the rise in international coal prices will gradually be transmitted to the domestic market

II. Key companies in the coal industry in the second quarter of 2008. 6. Investment suggestions of measuring the size of samples

1. Maintain the industry investment rating as "attractive"

at present, the annual average p/E ratio of the domestic coal industry has reached 45.26 times and 34.95 times, higher than the average p/E ratio of 27.92 times and 22.89 times in Hong Kong market, and the average p/E ratio of 25.02 times and 18.43 times in foreign markets. As China is still in the high-speed period of economic development, the sustained and rapid development of industry and the continuous improvement of urbanization have generated a large demand for energy, so we maintain the industry investment rating as "attractive"