According to a research report from Guosheng Securities, information released by "World Coal" on April 3rd indicates that liquefied natural gas (LNG) supply disruptions are driving increased demand in the coal market, as rising natural gas prices trigger fuel switching. This market trend is driven by external turbulence in the energy system rather than coal's own fundamentals. Although constraints limit a repeat of the surge pattern seen in 2022, coal remains a key backup option for energy security, supporting price increases.
Market estimates suggest that if LNG supply disruptions persist, global thermal coal demand could increase by 40 to 60 million tonnes, accounting for 4% to 6% of global thermal coal trade volume. Within this, the incremental proportion for high-calorific value coal segments could reach 10% to 15%, with supply and demand tightening more significantly, benefiting high-calorific value coal exporters like Australia.
Unlike 2022, factors such as coal power plant retirements in Europe, increased penetration of renewable energy, coupled with Asian LNG contracts, operational constraints at coal-fired power plants, and logistical limitations, have restricted the capacity for gas-to-coal switching. Consequently, coal demand is being released gradually, but the trend is established, with Japan and Europe clearly increasing their coal usage.
Coal prices are rising in tandem with LNG. If supply disruptions last for one to two months, Newcastle coal futures could reach $165 to $185 per tonne. However, price upside is limited due to structural changes post-2022, including reduced coal power capacity in Europe and already high coal utilization in parts of Asia.
Rising coal prices are expanding gross margins for coal producers, but significant increases in costs such as diesel are eroding some profits, intensifying differentiation within the industry. Companies with high participation in seaborne thermal coal and strong cost advantages are better positioned to capture growth opportunities, while more diversified or higher-cost producers may see relatively limited benefits.
Long-term, coal demand is driven by failures in other energy sources. The duration of LNG market imbalances requires close attention, as future potential supply disruption risks could raise the structural floor for coal prices.
Investment recommendations focus on companies with strong performance as annual reports are disclosed. Key recommendations include China Coal Energy Co., Ltd., Yankuang Energy Group Company Limited, China Shenhua Energy Company Limited, and Shaanxi Coal Industry Company Limited. Also recommended are companies like Keda Industrial Co., Ltd., which is deeply involved in smart mining, and China Qinfa Group Limited, which is showing a potential turnaround from difficulties. Other companies to watch include KINETIC DEV, Peabody Energy Corporation, and several other domestic coal producers. Furthermore, Jiangwu Equipment Co., Ltd., which recently completed a controlling stake change and asset replacement, is also worth significant attention.
Risks include domestic production exceeding expectations, downstream demand falling short of expectations, raw coal imports exceeding forecasts, and geopolitical tensions not unfolding as anticipated.
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