- China's coal-to-chemicals stocks rise amid Iran conflict
- Oil price surge benefits coal-based chemical producers
- China's energy strategy favors coal, renewables amid Middle East tensions
BEIJING, March 25 (Reuters) - China's coal-to-chemicals stocks have risen as much as 30% since the Iran war started, as the sector cashes in on its ability to turn domestic coal into petroleum products and other chemicals without relying on shipments through the Strait of Hormuz.
The surge in oil prices from Iran's near-closure of the Strait has been a boon for the sector, which has roots in wartime Germany and is found almost nowhere else, and transforms coal into oil, gas and a myriad of chemicals used for everything from plastic bags to fabrics.
While their petrochemical competitors in other countries face a more than 30% jump in oil prices since the war, Chinese coal prices have fallen even as the supply disruption in the Gulf raises prices for the chemicals, oil and gas produced by the sector.
Shares in Ningxia Baofeng Energy, which produces millions of tons of petrochemicals each year from coal, are up some 30% since the U.S. and Israel launched their war on Iran on February 28.
Shenhua Energy, the listed arm of China's top coal producer and another major coal-to-chemicals player, is up by 15%.
Meanwhile, traditional oil-based refiner Rongsheng Petrochemical is down some 27% since the conflict began and peers Hengli Petrochemical and Wanhua Chemical have fallen 21% and 17%, respectively.
Chinese oil refiners are additionally disadvantaged because of government price controls on retail gasoline and diesel prices that limit how much they can pass on higher oil prices.
"High oil prices have sharply increased costs for oil-based chemical producers," Guolian Minsheng Securities analysts said in a note on Saturday. "Coupled with supply constraints in the Middle East, the cost advantage of coal-based chemicals has become increasingly apparent, driving sustained growth in downstream demand."
INDUSTRY IS VALIDATED
Even before the Iran war, Beijing was already moving to expand the sector as an energy security hedge and called for new projects across the country's west in its latest five-year plan.
While investors are also betting China will boost its push on cleaner, renewable energy, the conflict is likely to reinforce Beijing's bet on the expensive and dirty coal-to-chemicals sector, which allows China to use its coal reserves to replace some of the gas, oil and oil-derivative products it imports in massive quantities.
Guolian Minsheng analysts estimate coal consumption in the sector last year rose 11.5% year-on-year to 362 million metric tons, with another 243 million tons of capacity under construction and 561 million tons in the planning pipeline.
"With chemical product prices rising, coal-to-chemicals companies are expected to see earnings improve, while faster approvals for new projects may also support valuation expansion," the note said.
Reporting by Colleen Howe and Sam Li in Beijing; Editing by incoln Feast.
Source: Reuters