CITIC Securities: Escalation of Middle East Conflict May Boost Coal Sector Valuations

China Securities Research Report states that the escalation of Middle East geopolitical conflicts, if oil prices rise, may effectively push up coal prices; at the same time, if trade logistics for chemicals like methanol are affected, domestic coal chemical demand may also increase, which is positive for coal prices. Currently, combined with export disruptions caused by reduced Indonesian coal output, the outlook for domestic coal prices is expected to continue improving. We recommend undervalued companies with coal chemical businesses and those with a relatively high proportion of chemical coal sales, as well as companies with coal resource layouts in Indonesia.

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Coal | Escalation of Middle East Conflict May Boost Sector Valuations

The escalation of Middle East geopolitical conflicts, if oil prices rise, may effectively push up coal prices; at the same time, if trade logistics for chemicals like methanol are affected, domestic coal chemical demand may also increase, which is positive for coal prices. Currently, combined with export disruptions caused by reduced Indonesian coal output, the outlook for domestic coal prices is expected to continue improving. We recommend undervalued companies with coal chemical businesses and those with a relatively high proportion of chemical coal sales, as well as companies with coal resource layouts in Indonesia.

▍ Escalation of Middle East conflicts may lead coal prices to follow oil prices upward.

According to Xinhua News Agency, “The US and Israel announced on February 28, 2026, that they launched strikes against Iran from the air and sea. Analysts believe that military strikes by the US and Israel against Iran will disrupt energy supply expectations, boost market risk aversion, and the regional situation revolving around the Strait of Hormuz will evolve into three potential scenarios that will determine their impact on the market.” We believe that if the US-Iran conflict escalates and drives oil prices higher, coal prices may also follow suit. Historically, the long-term trend of oil-coal price ratios has been moving in the same direction; in recent two years, the oil-coal ratio has remained stable between 2 and 3, providing a short-term linkage basis. Additionally, Indonesian coal output has been expected to continue shrinking since 2026, and the combined factors give strong momentum for further coal price increases.

▍ Rising oil prices may make coal chemical industry a key factor in domestic coal price transmission.

Since current mainstream coal chemical products are aligned with petrochemical products, with similar prices, if petrochemical products increase in price driven by rising crude oil costs, coal chemical profits could expand, leading to higher utilization rates of coal chemical plants and increased coal consumption. The profitability of coking by-products may also improve, which can boost coke plant utilization rates. Both pathways can lead to increased coal demand and rising coal prices. Notably, the Middle East is also a major source of China’s methanol imports (accounting for over 70% in 2025 according to Customs data). If conflicts disrupt regional logistics, domestic demand for coal-based methanol could further increase, making coal-to-methanol demand more beneficial.

▍ Short-term thermal coal prices are expected to remain strong under import factors, with seasonal prices possibly exceeding expectations this year.

Due to ongoing expectations that Indonesian authorities will reduce coal production quotas since early this year, most Indonesian mines have cut back on spot coal exports, tightening supply for Chinese imports. This reduction has also driven up Australian coal import prices. Currently, the bid prices for imported coal arriving in April are generally inverted, supporting prices during the off-season. Coupled with rising oil prices, we expect that in Q2, coal prices may remain unexpectedly strong during the seasonal lull. We forecast that within the next month, the price of 5500 kcal thermal coal at Beigang could rise above 800 yuan/ton, with the average Q2 price possibly exceeding 750 yuan/ton.

Risk Factors:

• Easing of geopolitical conflicts or lower-than-expected overseas coal production cuts could lead to systemic declines in international coal prices.
• Macroeconomic fluctuations could impact coal demand and prices.
• The implementation of supply contraction measures may fall short of expectations, or safety inspections could loosen, leading to increased supply.

Investment Strategy: The combined effect of Middle East conflicts and Indonesian supply disruptions is expected to push coal prices higher, with the sector likely to further rise.

Since February, driven by ongoing tightness in Indonesian coal supply, market sentiment has warmed, and prices have accelerated upward. The ongoing Middle East conflicts are expected to continue elevating global energy commodity prices. Supported by overseas factors and domestic demand for start-up and inventory replenishment, we anticipate domestic coal prices will further rise, and the sector may continue its upward trend.

(Source: First Financial)