Zhongtai Securities: Xinjiang Coal Chemical Industry Strongly Rises, Focus on Three Major Investment Directions in the Industry Chain

According to the Zhitong Finance APP, Zhongtai Securities released a research report stating that under the background of industrial upgrading and energy security resonance, modern coal chemical industry is ushering in a development opportunity period. China's energy reserves show characteristics of "rich in coal, poor in oil, and scarce in gas," with coal accounting for more than 50% of the energy consumption structure in the long term. Xinjiang has the foundational conditions to become a large coal chemical base: abundant coal reserves, with prospective reserves of 21.9 trillion tons, accounting for about 40% of the national total; high-quality coal types, mainly consisting of medium to low metamorphic long flame coal, non-caking coal, and weakly caking coal, all of which are high-quality thermal coal and chemical raw material coal; and significant cost advantages, suitable for open-pit mining. From the perspective of the industrial chain, it is recommended to grasp three major investment directions: equipment side, owner side, and service side.

The main viewpoints of Zhongtai Securities are as follows:

Industrial upgrading and energy security resonance, modern coal chemical industry welcomes development opportunities

Modern coal chemical industry refers to the industry that uses coal as raw material and employs advanced technologies and processing methods to produce substitutes for petrochemical products and clean fuels, mainly including coal-to-olefins, coal-to-ethylene glycol, coal-to-aromatics, and other coal-based chemicals, as well as coal-to-oil and coal-to-natural gas, which are coal-based clean fuels. The technology content and added value of modern coal chemical processes and products are relatively high, representing the future development trend of the coal chemical industry.

In addition, considering ① resource endowment, China's energy reserves show characteristics of "rich in coal, poor in oil, and scarce in gas," with coal accounting for more than 50% of the energy consumption structure in the long term; ② import dependence, China's dependence on foreign oil and gas resources remains high, with crude oil and natural gas imports accounting for 73% and 42% respectively in 2023, under the complex and changeable international situation and the rising uncertainty risks of external energy supply, vigorously developing the modern coal chemical industry can effectively alleviate the pressure of dependence on foreign oil and gas, and promote the clean and efficient utilization of coal through technological innovation, making it an inevitable choice for China to achieve industrial upgrading and ensure energy security.

Resource endowment and policy dividends work together, Xinjiang's coal chemical industry rises strongly

Xinjiang has the foundational conditions to become a large coal chemical base: ① abundant coal reserves, with prospective reserves of 21.9 trillion tons, accounting for about 40% of the national total; ② high-quality coal types, mainly consisting of medium to low metamorphic long flame coal, non-caking coal, and weakly caking coal, all of which are high-quality thermal coal and chemical raw material coal; ③ significant cost advantages, suitable for open-pit mining.

At the same time, in terms of top-level design, the state has also clearly positioned Xinjiang as a large coal chemical base, with multiple favorable policies introduced to promote the rapid development of Xinjiang's coal chemical industry. According to a report from the Oil and Chemical Park in March 2025, the current investment scale of coal chemical projects under construction and planned in Xinjiang exceeds 800 billion yuan, including 9 planned coal-to-olefins projects with an investment scale of 257.5 billion; 11 coal-to-natural gas projects with an investment scale of 310.9 billion; and 3 coal-to-oil projects with an investment scale of 104.3 billion.

Specifically, ① coal-to-gas, with Zhuzhong and Hami as important strategic bases for national coal-to-oil and gas, is developing rapidly. Currently, there are 10 publicly announced coal-to-gas projects in Xinjiang, with a total investment of 260.3 billion yuan and a planned production capacity of 40 billion cubic meters. In terms of economics, a comparison was made among the provinces of Xinjiang, Inner Mongolia, and Shaanxi that have or plan coal-to-gas projects, assuming that the raw material and energy consumption per unit remain consistent, the coal price plays an important role in the cost of coal-to-gas. In 2024, the pithead price of thermal coal in Hami, Xinjiang, is 57% lower than that in Yulin, Shaanxi, and Ordos, Inner Mongolia 44%, comprehensive calculations show that the production costs of coal-to-gas in Xinjiang, Inner Mongolia, and Shaanxi are 1.28 yuan/cubic meter, 2.06 yuan/cubic meter, and 2.68 yuan/cubic meter respectively, with Xinjiang coal-to-gas having a significant competitive advantage in production costs.

Considering the transportation of Xinjiang coal-to-gas, the calculated transportation price from the West-to-East Gas Pipeline's third line from Xinjiang to Fuzhou is 0.54 yuan/cubic meter, making the total cost of transporting Xinjiang coal-to-gas to Fuzhou 2.62 yuan/cubic meter. Compared to the current lowest residential sales price of pipeline natural gas in Fuzhou at 3.61 yuan/cubic meter, Xinjiang coal-to-gas remains economically viable after transportation to Fuzhou.

② Coal-to-liquid, the current National Energy Hami 4 million tons coal-to-liquid project and Yitai Yili 1 million tons coal-to-liquid project are steadily under construction, expected to be operational by 2027. In terms of economics, according to the Coal Chemical Committee of the China Petroleum and Chemical Industry Federation, with coal prices in the range of about 500-600 yuan/ton and international oil prices maintained at 60-70 USD/barrel, coal-to-liquid projects can reach a breakeven state.

Additionally, comparing Xinjiang, Inner Mongolia, and Ningxia, which have existing or planned coal-to-liquid projects, assuming that the raw material and energy consumption per unit remain consistent, with coal prices being the main influencing factor, the pithead price of thermal coal in Hami, Xinjiang is 44% and 45% lower than that in Ordos, Inner Mongolia and Ningxia respectively in 2024. Comprehensive calculations show that the production costs of coal-to-liquid in Xinjiang, Inner Mongolia, and Ningxia are 1305.16 yuan/ton, 2216.10 yuan/ton, and 2340.24 yuan/ton respectively, with Xinjiang coal-to-liquid having a significant competitive advantage in production costs.

③ Coal-to-olefins, the Xinjiang Energy Chemical Zhundong coal chemical integration project is progressing in an orderly manner. In terms of economics, according to the Sinopec Economic Research Institute, the CMTO (Coal-based Methanol to Olefins) process has a cost advantage when international oil prices exceed 60 USD/barrel. The average Brent oil price in 2024 is expected to be around 80 USD/barrel. According to Baichuan Yingfu, as of December 31, 2024, the profit from the CTO/MTO route for producing polyethylene is approximately 1934.50/549.42 yuan/ton, leading the oil-based route by about 1404/19 yuan/ton; the profit from the CTO/MTO route for producing polypropylene is approximately 1460.50/544 yuan/ton, leading the oil-based route by about 921/5 yuan/ton, and leading the PDH route by 1285/369 yuan/ton.

From the perspective of the industrial chain, grasp the three major investment directions of equipment, owners, and service providers.

Coal chemical projects can be divided into upstream and downstream links, including coal mining and washing, engineering construction, equipment manufacturing and supply, and chemical product production and transportation. Based on the industrial chain, three major investment directions are identified:

① Engineering design, general contracting, and equipment companies that will benefit first from coal chemical project investments. It is recommended to pay attention to SUNWAY (002469.SZ), China Chemical (601117.SH), Donghua Technology (002140.SZ), Aerospace Engineering (603698.SH), and Sinopec Engineering (02386). ② Coal chemical project owners expected to benefit from the cost advantage of Xinjiang coal, it is recommended to pay attention to Baofeng Energy (600989.SH), Guanghui Energy (600603.SH), TBEA (600089.SH), and Hubei Yihua (000422.SZ).

③ Civil explosive mining service companies providing services for coal chemical projects, it is recommended to pay attention to Guangdong Hongda (002683.SZ), Xuefeng Technology (603227.SH), Yipuli (002096.SZ), and Jiangnan Chemical (002226.SZ).

Risk Warning

Macroeconomic risks, industrial policy not meeting expectations, safety production risks, project progress not meeting expectations, significant fluctuations in crude oil and coal prices, estimation deviation risks, and the risk that publicly available information used in research reports may be outdated or not updated in a timely manner