Shanxi safety inspections continue to suppress coking coal supply, and coking coal is more resilient than thermal coal

Overview

This report is Morgan Stanley’s weekly update on China’s coal industry, focusing on thermal coal and coking coal price changes and the impact of Shanxi safety inspections on coking coal supply. Its core conclusion is that thermal coal prices are relatively weak month-over-month, while coking coal is more stable due to constrained supply.

Core views

The report argues that Shanxi’s ongoing safety inspections continue to suppress coking coal supply, with frequent mine shutdowns and restarts, and most mines operating at low capacity, keeping regional supply at a low level. This supply constraint explains why coking coal prices are relatively stronger than thermal coal. At the same time, most thermal coal indicators are down month-over-month, indicating weaker short-term demand or price momentum.

Analysis framework

The report uses a weekly price-tracking approach combined with regional supply monitoring: on the one hand it compares month-over-month changes in price metrics including Qinhuangdao, BSPI, CCI, Shanxi Datong pithead, Lulin No.4 coking coal, FOR and QLD; on the other hand it cites Sxcoal survey data on the number of shut coking coal mines in Shanxi, affected cities, and lost capacity to assess supply disruptions.

Methodology notes

• industry weekly monitoringCoal Price and Supply Monitoring

  Use changes in month-over-month prices and shutdown capacity at coking coal mines to judge short-term supply-demand strength.

  Falling thermal coal prices reflect market pressure, while stable or higher coking coal prices are linked to supply contraction caused by Shanxi safety inspections.

• sell-side rating frameworkMorgan Stanley Stock Ratings / Industry Views

  Overweight, Equal-weight and Underweight reflect risk-adjusted total return over the next 12-18 months relative to the covered sector universe; a Cautious industry view indicates a cautious stance versus the benchmark.

  The report states a Cautious China coal industry view, but does not present new company-level target prices or rating changes in the main text.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Coking Coal

  Directly affected by Shanxi safety inspections and mine shutdowns

  Strengths

  Supply constraints support price resilience, and domestic price indicators remain stable or slightly higher.

  Weaknesses

  Frequent shutdowns and restarts mean the pace of supply recovery could weaken price support.

  Comparison

  Compared with thermal coal, coking coal performed stronger this week.

  Risks

  Relaxation of safety inspections, recovery of shut capacity, weakening downstream demand.

• Thermal Coal

  Affected by changes in weekly price indicators

  Strengths

  QHD 5500 rose 0.1% MoM, and seaborne NEWC price rose 0.8% MoM.

  Weaknesses

  BSPI, CCI 5500, and Shanxi Datong 5800 pithead price are all down MoM, showing an overall weaker trend.

  Comparison

  Compared with coking coal, thermal coal’s price momentum is weaker.

  Risks

  Demand shortfall, inventory pressure, continued price declines.

• China Coal Equities

  Affected by coal prices, supply disruptions, and the industry rating framework

  Strengths

  Coking coal supply contraction may benefit companies with higher exposure to coking coal.

  Weaknesses

  Morgan Stanley’s industry view for China Coal Asia Pacific is Cautious.

  Comparison

  Covered stocks include China Coal Energy, China Shenhua Energy, Shaanxi Coal Industry, Shanxi Coking Coal, Yancoal Australia, Yankuang Energy Group, and Shougang Fushan Resources Group.

  Risks

  Industry valuation is affected by falling coal prices, safety regulation, investment-banking conflict disclosures, and rating changes.

Key data

• QHD 5500Rmb727/t, up 0.1% MoMAs of July 3.
• BSPIRmb712/t, down 0.3% MoMThermal coal price indicator.
• CCI 5500Rmb851/t, down 0.6% MoMThermal coal price indicator.
• Shanxi Datong 5800 pithead priceRmb700/t, down 3.4% MoMThermal coal pithead price.
• Lulin No.4 coking coal pithead priceRmb865/t, flat MoMDomestic coking coal price remained stable.
• FOR priceRmb2,040/t, flat MoMCoking coal-related price indicator.
• QLD priceUS$242/t, up 0.4% MoMMaritime or overseas coking coal-related price indicator.
• Shanxi shut coking coal mines54 mines, total 72.15 mtpaAs of July 3, covering Changzhi, Taiyuan, Jinzhong, Luliang and Linfen.
• Shutdown capacity changedown 0.3 mtpa day-over-day, down 62.35 mtpa from May 25Number of shut mines was unchanged from the previous day and down 65 mines from May 25.

Impact & implications

Restricted coking coal supply may support coking coal prices and related asset performance in the short term, but weakening thermal coal prices and a Cautious industry view suggest the broader coal sector still faces uncertainty around demand, pricing, and the pace of safety inspections. For investors, the price sensitivity and risk exposure of coking coal versus thermal coal assets should be evaluated separately.

Risks

• Changes in the pace of Shanxi safety inspections could lead to faster-than-expected recovery of coking coal supply.
• Multiple thermal coal indicators are down MoM, which may reflect weaker demand or market sentiment.
• Frequent mine shutdowns and restarts can cause high-frequency volatility in regional supply data.
• The report discloses that Morgan Stanley has business relationships or potential conflicts of interest with some covered companies, so investors should evaluate independently.

What to watch

• Whether the number of shut coking coal mines in Shanxi and shut capacity continue to decline.
• Whether Lulin No.4 coking coal, FOR, QLD and other coking coal prices continue to remain resilient.
• The weekly direction of BSPI, CCI 5500, QHD 5500, and Shanxi Datong pithead price.
• Whether the China coal industry view of Cautious changes.
• The ongoing impact of safety inspections, overproduction remediation, and mine operational issues on capacity utilization.