Core view
Coal chemical industry is expected to open a new period of development: the trade friction in 2018 has prompted China to attach great importance to the neck link in the high-precision and cutting-edge field, and we believe that the impact of the Russian Ukrainian conflict on China’s industry will be further deepened and may be raised to the level requiring the industrial chain to be fully independent and controllable. For the energy and chemical industry, China’s biggest weakness lies in the self-sufficiency rate of raw materials. In 2021, China imported 510 million tons of crude oil, with an import dependence of 72%. At present, coal to olefin accounts for about 20% of the total supply and coal to oil accounts for less than 3%. It is of great strategic value to increase the proportion of coal chemical industry in the current environment. At the same time, Europe has fallen into an energy crisis. Although its goal of long-term energy sustainability is advanced, the energy shortage in the medium and short term is likely to lead to a rebound in coal demand, which will also alleviate the pressure on China’s short-term carbon emission assessment. Moreover, in the long run, even if China builds a batch of coal chemical plants, it can reduce the carbon emission intensity through green hydrogen in the future and increase the production scale several times.
Changes in energy prices improve profitability: since 2021, traditional energy prices have continued to rise. We believe that this is an inevitable long-term change under the global carbon neutralization goal, and the conflict between Russia and Ukraine has further strengthened this trend. Although China’s coal prices have risen significantly, crude oil has increased even more, and natural gas has reached an unprecedented height, which has greatly pushed up the cost of petrochemical and natural gas chemical products. Under the guidance of focusing on the national economy and the people’s livelihood, it is expected that the price of urea, the most important product in coal chemical industry, will remain stable and become the price anchor of coal for China’s chemical industry. This will create huge arbitrage space between China’s coal chemical products compared with petrochemical and natural gas chemical products, and the profitability of coal chemical enterprises will be significantly improved.
Investment proposal and investment object
We believe that the development of coal chemical industry is expected to usher in a new period of opportunity under the general tone of China’s emphasis on independent security. At the same time, the sharp increase in the cost of crude oil and European energy has raised the price of chemical products, which is good for the profitability of China’s coal chemical industry. We suggest paying attention to China’s leading coal to olefin enterprise Ningxia Baofeng Energy Group Co.Ltd(600989) ( Ningxia Baofeng Energy Group Co.Ltd(600989) , buy), China’s leading diversified coal chemical enterprise Shandong Hualu-Hengsheng Chemical Co.Ltd(600426) ( Shandong Hualu-Hengsheng Chemical Co.Ltd(600426) , buy), China xinlianxin chemical fertilizer (01866, Unrated), etc.
Risk tips
Industrial policy risk; Risk of price change of fossil energy; The measurement results are based on assumptions. If the assumptions change, the risk of affecting the measurement results will be.
