Goldman Sachs issued a research report on April 27 stating that the so-called price-reduction policy of the NDRC is limited to contract prices with power plants, and does not affect the spot market price, and maintains its rating on Yanzhou Coal to remain unchanged.
The report said that the National Development and Reform Commission of China had arranged to meet with several major domestic coal production companies to require them to properly control the rise in coal prices. The report pointed out that the National Development and Reform Commission does not intend to introduce price controls yet, but if coal prices continue to rise, it does not rule out the possibility of price intervention.
Goldman Sachs believes that this news is not news. At the end of 2010, the National Development and Reform Commission limited the price increase of major coal contracts in 2011, leading to a significant weakening of Chinese coal sector stocks in the first quarter.
It needs to be emphasized that the price limit applies only to the sale of large-scale coal contracts between China's largest state-owned coal mining companies and major power plants in order to ease the impact of rising coal prices on inflation. In 2011, the coal sales volume for this type of contract was approximately 380 million tons, while the total coal market transaction volume reached 3.5 billion tons.
Goldman Sachs believes it is very difficult to implement price controls in the coal spot market. First of all, the coal market is still a highly decentralized market, which includes more than 20,000 manufacturing companies and tens of thousands of traders. Second, coal products and prices are divided into many different types and grades in order to effectively implement prices in the spot market. It is almost impossible to regulate or monitor prices.
Goldman Sachs believes that the market is overreacting to the effect that price limit may have on profits, which is mainly due to the confusion of large-scale coal contract sales and spot market sales.
Taking into account the continuing power shortage, the shortage of access to the summer may further intensify, Goldman Sachs believes that there is room for further increase in the price of Chinese spot trading hot coal.
Goldman Sachs believes that the current price of Yanzhou Coal is the most appropriate. The company has the highest spot sales ratio (approximately 70% of domestic sales), and therefore it is the least vulnerable to price limits, and it benefits most from spot coal price increases. Therefore, Yanzhou Coal is the preferred stock of Goldman Sachs in China's three major coal producers. Goldman Sachs reiterated its rating on the stock and its target price.
The report said that the National Development and Reform Commission of China had arranged to meet with several major domestic coal production companies to require them to properly control the rise in coal prices. The report pointed out that the National Development and Reform Commission does not intend to introduce price controls yet, but if coal prices continue to rise, it does not rule out the possibility of price intervention.
Goldman Sachs believes that this news is not news. At the end of 2010, the National Development and Reform Commission limited the price increase of major coal contracts in 2011, leading to a significant weakening of Chinese coal sector stocks in the first quarter.
It needs to be emphasized that the price limit applies only to the sale of large-scale coal contracts between China's largest state-owned coal mining companies and major power plants in order to ease the impact of rising coal prices on inflation. In 2011, the coal sales volume for this type of contract was approximately 380 million tons, while the total coal market transaction volume reached 3.5 billion tons.
Goldman Sachs believes it is very difficult to implement price controls in the coal spot market. First of all, the coal market is still a highly decentralized market, which includes more than 20,000 manufacturing companies and tens of thousands of traders. Second, coal products and prices are divided into many different types and grades in order to effectively implement prices in the spot market. It is almost impossible to regulate or monitor prices.
Goldman Sachs believes that the market is overreacting to the effect that price limit may have on profits, which is mainly due to the confusion of large-scale coal contract sales and spot market sales.
Taking into account the continuing power shortage, the shortage of access to the summer may further intensify, Goldman Sachs believes that there is room for further increase in the price of Chinese spot trading hot coal.
Goldman Sachs believes that the current price of Yanzhou Coal is the most appropriate. The company has the highest spot sales ratio (approximately 70% of domestic sales), and therefore it is the least vulnerable to price limits, and it benefits most from spot coal price increases. Therefore, Yanzhou Coal is the preferred stock of Goldman Sachs in China's three major coal producers. Goldman Sachs reiterated its rating on the stock and its target price.
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