Coal Price: Buy Opportunity After 8.2% Rise and 3-Day Drop?
01
Last week, during the five trading days, the coal sector fell on three of them, with significant declines on Tuesday and Wednesday. The China Securities Coal Index dropped by 5.15% on Tuesday and fell another 2.5% on Wednesday. Although there was a rebound on Thursday, it fell again by 1.1% on Friday.
With such violent fluctuations, is coal still worth investing in?
In fact, looking back, in August, coal experienced a wave of increases, with the China Securities Coal Index rising by 8.2% for the month.
This wave of increases just reached above 2700 points before starting to pull back. This phenomenon has occurred several times in the past: in mid-June of this year, the coal index reached 2700 and then began to decline; in mid-April of this year, the coal index reached its highest intraday level of 2700 and started to fall on the same day; if we look further back, in mid-September of last year, the coal index also began to fall after exceeding 2700 points.
02
Considering various factors, coal is unlikely to have medium to long-term investment value. The reasons are as follows.
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Firstly, from a medium to long-term perspective, the supply and demand contradiction of coal is not prominent.
Looking at the domestic situation, last year China's raw coal production and consumption were almost equal, with only a small amount of imports needed, and the import volume was only about 2.5% of the annual consumption, which means that China's coal is basically self-sufficient.
The international situation is a bit special; in fact, for such a long time, the supply and demand of coal have been basically balanced.However, this year, due to restrictions on exports to Russia, there was a sudden realization that coal supply could not keep up. But this issue can always be resolved, so in the medium to long term, there is no supply and demand contradiction for coal, and there is no reason for coal prices to keep rising indefinitely.
Secondly, from an industry perspective, coal belongs to a mature industry, and it is difficult to have any technological innovation. Therefore, the main influencing factor of the coal sector's stock price trend is the price of coal itself. By reviewing the EPS of the China Securities Coal Index over the past years, we find that the changes in profits basically follow the changes in coal prices. It is not like other industries, such as the consumer industry, pharmaceutical industry, or new energy industry, where EPS is continuously increasing in the long term.
Lastly, we must also look at the future development of energy. Energy conservation and emission reduction, green energy are global trends, and they will not be greatly affected by short-term events. Coal is not a clean energy source, so the future energy substitution will continue to be promoted. With the continuous advancement of new energy technology, the dependence on traditional energy will gradually decrease in the future. Based on this expectation, industry capital is also very cautious about investing in traditional energy. Without sufficient investment, this industry cannot have greater prospects in the future.
Perhaps short-term gains can still be obtained by investing in the coal sector, but these gains are more due to luck. In the medium to long term, the current situation is at a relatively high risk level, with far greater risks than opportunities.