Sector Update / Coal / Click here for full PDF version
Author(s): Ryan Winipta
- European heat-wave and mining safety inspection in China shall kept thermal-coal prices elevated throughout FY26F, in our view.
- With coal share price no longer following war-related sentiments, we think this shall present a buying opportunity in certain names.
- We like on its robust EPS & FCF generation and on better 2H26F outlook. Maintain Neutral stance on the sector.
Europe: heat-wave to lower nuclear generation; low gas storage
Recent heat-wave in Europe have led to an increased reliance on fossil-fuel such as coal due to lower electricity generation coming from nuclear and hydro plants. France's nuclear fleet, in particular, has lost c.3.7TWh of generation in Jun26 and Jul26, much higher vs. previous years (Fig. 1). Additionally, several coal deliveries, particularly to German power plant, has been disrupted, pushing European Rotterdam coal price to above US$125/t level (Fig. 2). European gas storage fill rate at 61%, roughly 16 percentage points below 5-year mean also present +ve tailwind to coal prices
China & India: China production fell but India remained robust
Chinese domestic coal (Qinhuangdao) price has been up by +27% YTD, which has been affected by lower production, recently due to mining accidents in Liushenyu coal mine in Shanxi (c.30% raw coal output in China). Since the incident in May26, China coal imports in Jun26 fell by -2% but has risen by +22% mom in Jul26, respectively, which coincided with the increase in Qinhuangdao price as well as Indonesia Coal Index (ICI) price. We think China will continue to exhibit supply-side constraint due to ongoing safety inspection, especially ahead of the upcoming winter season - where coal demand usually the highest. India, however, are unlikely to create additional seaborne demand as its coal production continue to rose while coal inventory remain ample despite increase in coal-fired electricity generation by +13% yoy in Jul26 (Fig. 4).
Previous decline from peak presents buying opportunity
share price has declined from Rp11.6k/share level to Rp7.4k/share (-37% from its peak) in Jun26, with /ITMG also experiencing similar decline at -29%/-28%. We think this was mainly driven by a combination of: 1) US-Iran peace-deal, in-line with the share price decline of global coal peers, and 2) formation of DSI, despite steady increase in ICI and Newcastle coal prices (Fig. 5 & 6). While there has been exchange of physical attack between US-Iran amid fragile US-Iran peace deal, we believe coal names remain attractive amid supply-side constraints and upcoming restocking seasonality as share price no longer reacted to war-related sentiments along with improving macro/policy outlook.
Maintain sector Neutral; as our top pick in thermal space
We maintain our sector Neutral stance in thermal-coal space, as we are only selectively bullish on several names such as(Buy) and(Buy) while we see limited catalysts on /ITMG/UNTR. We like on its robust EPS generation along with potential special dividend from Kestrel's sale, with undemanding valuation of 5x FY26F P/E, meanwhile we also like on its 2H26F coal-sales outlook (report). Downside risks includesustained low water level in Kalimantan, which could negatively affect transportation and disrupt sales.
Sumber : IPS