China's coal-chemicals sector reaps the benefits as Iran war crushes its petrochemical rivals

China's coal-to-chemicals stock has risen by up to 30% since the Iran War began, as the industry?capitalizes on its ability to?turn domestic coal into petroleum and?other chemicals without relying upon shipments through Strait of Hormuz. The rise in oil prices due to Iran's close-to-closing of the Strait of Hormuz has been a boon to the coal-to chemicals sector. This industry has its roots in Germany during World War II and is almost unique. It transforms coal into petroleum products, gas, and other chemicals.

Chinese coal prices are down despite the fact that the Gulf supply disruption has increased prices for chemicals, oil, and gas.

Since the U.S. launched its war against?Iran, on February 28, shares of Ningxia Baofeng Energy have risen by 30%. This company produces millions of tonnes of petrochemicals every year using coal.

Shenhua Energy is up 15%.

Rongsheng Petrochemical, a traditional oil-based refiner, has fallen by 27% since the start of the conflict, while Hengli Petrochemical, Wanhua Chemical, and other competitors have dropped by 21% and 17% respectively. Chinese oil refiners also suffer from government price controls that limit their ability to pass on increased oil prices.

In a note published on Saturday, analysts at Guolian Minsheng Securities said that high oil prices had increased the costs of oil-based chemicals. The cost advantage of coal based chemicals is becoming more apparent as a result of the Middle East supply shortages. This has led to a sustained increase in downstream demand.

Industry is validated Even before the Iran War, Beijing was already expanding the sector to provide energy security and had called for "new projects" in the west of the country in its most recent five-year plan. Investors are betting that China will increase its efforts to promote cleaner, renewable energy. However, the conflict may reinforce Beijing's bet on the dirty and expensive coal-to chemicals sector. This allows China to use their?coal to replace some of its gas, oil, and oil-derived products, which it imports massively.

Analysts at Guolian Minsheng estimate that coal consumption in this sector rose by 11.5% last year to 362 million metric tons. Another 243 million metric tons of capacity is under construction, and another 561 millions tons are in the planning pipeline.

The note stated that "with chemical product prices increasing, coal-tochemicals companies can expect to see improved earnings, and faster approvals of new projects could also support valuation growth."

(source: Reuters)