Stable spot prices at QHD port. Thermal coal prices rebounded slightly at (Reiterate)Qinhuangdao port (QHD) last week. Prices of 5,800/kcal thermal coalrebounded Rmb10/tonne to Rmb 655/tonne, while those of 5,500/5,000kcalmaintained at Rmb620/535 per tonne. Inventory at the port rose 5% WoW to6.6mn tonnes, while that at the major 6 power companies dropped 2% WoWto 14.3mn tonnes (or equivalent to 20 days).

Contract prices posted modest increase in general. Negotiations oncontract price between power plants and coal producers almost come to anend. It is reported by SXCoal.com that the well-compromised pricing for thisyear is a Rmb10-20/tonne discount to Bohai Rim Coal Price Index (BRCPI),close to Shenhua’s approach of a Rmb10/tonne discount to BRCPI on aquarterly revision basis. Our recent channel check also found Shanxi coalproducers managed to lift contract prices slightly by adopting quality-basedpricing on the basis of Rmb0.1/kcal. All told, contract prices set for 2013E willrise moderately, much in-line with our expectations.

Limited impact from ETT’s export halt. Market focus was on the news thatErdenes Tavan Tolgoi (ETT) halted coking coal supply to China in light ofcost saving on logistics under tight liquidity. We believe the impact should bevery limited as the supply from ETT only accounted for ~12% of the totalimported volume from Mongolia (~2mn tonnes/year). As such, there is verylimited upside for the ASP of coking coal from other Mongolian cokingproducers in short. As a result, we maintain our view of a stable outlook ondomestic coking coal price in short term.

Wait for buying opportunities on coking coal plays. Last week, HK-listedcoal plays retreated slightly as we previously expected. We still suggestinvestors to take profit on thermal coal players given no positive catalysts insight. Should there be any short term correction in share prices, we wouldprefer coking coal plays over thermal coal ones in light of a better outlook onASP.