In recent months, several listed chemical companies, including Lantai Industry, Liuhua Chemicals, and Hubei Yihua, have announced their strategic moves into the coal mining sector. This trend follows earlier announcements from firms like Shuanghuan Technology, Taigong Tiancheng, and Lutianhua Chemical, which had already begun acquiring stakes in coal enterprises. These developments signal a clear shift: chemical companies are increasingly looking to secure control over upstream energy resources to stabilize costs and enhance long-term profitability.
The surge in coal prices has played a key role in this transformation. Domestically, the price of Datong High-Grade Mixed Coal (6000 kcal) in Qinhuangdao reached 500–510 yuan per ton on October 29, hitting a record high. This represents a significant increase of nearly 485–495 yuan/ton since the end of last month. Internationally, the Newcastle coal spot price in Australia climbed to an all-time high of $82.08 per ton on November 2, rising by 24% since September. Such price volatility has put pressure on downstream industries, particularly chemical companies that rely heavily on coal as both fuel and raw material.
For example, Shuanghuan Technology, despite its oil-to-coal conversion project, reported a net profit of only 75 million yuan for 2007, far below market expectations. The company cited rising thermal coal prices as a major factor in its cost pressures. Even with projected annual cost savings of 400 million yuan from its conversion project, the overall performance remains underwhelming. This highlights the growing challenge chemical firms face as coal prices continue to rise.
Many chemical companies are now taking proactive steps to mitigate these risks. By acquiring coal assets, they aim not only to reduce dependency on external suppliers but also to capitalize on the booming coal industry. For instance, Shuanghuan Technology acquired Shanxi Yufeng Yuyu Coal Industry, which has an annual production capacity of 300,000 tons and is expected to produce up to 400,000–600,000 tons. If coal prices remain stable, the mine could generate between 60 million and 110 million yuan in annual net profit, significantly boosting Shuanghuan’s earnings.
Similarly, Taigong Tiancheng’s subsidiary, Tiancheng Ocean, purchased 100% of Miaowan Coal Mine for 1.73 million yuan and a 45% stake in Chengjiazhuang Coal Mine for 3.6 million yuan. Liuhua Chemicals invested 84.7 million yuan to acquire a 90% stake in Xinyi Mining in Guizhou, which holds 45.7 million tons of recoverable reserves. These acquisitions are not just about securing supply—they’re strategic moves to support future coal-to-chemical projects and ensure long-term profitability.
Hubei Yihua also took steps to secure coal resources for its synthetic ammonia and urea plant, acquiring a 60% stake in Xinyi Mining for 110 million yuan. Jiayi acquired Guizhou Ruixin Coal Co. for 40 million yuan, further strengthening its position in the coal chemical sector. These investments are helping chemical companies build a more integrated and resilient supply chain.
The benefits of such acquisitions go beyond cost control. By securing coal resources, chemical firms can lock in raw material costs, reducing exposure to volatile market conditions. With coal enterprises typically enjoying gross profit margins exceeding 30%, and ex-factory prices around 250 yuan per ton, even a small reduction in coal costs can translate into substantial savings. For example, Liuhua estimates that each ton of coal saved costs 75 yuan, which directly impacts its bottom line.
Moreover, entering the coal industry lays the groundwork for the development of coal-based chemical projects. As China continues to invest heavily in coal chemical technologies—such as coal-to-methanol, dimethyl ether, and coal-to-oil—chemical companies that own coal assets will be well-positioned to benefit from this growth. The “Eleventh Five-Year Plan†period saw increased government support for coal chemical projects, and this trend is expected to continue through 2020 and beyond.
China’s energy structure, with relatively low per capita reserves of oil and natural gas compared to developed nations, makes coal the most viable long-term energy source. This reality underscores the importance of coal in the country’s energy strategy. Chemical companies that can secure coal resources are not only protecting themselves from price fluctuations but also positioning themselves for future growth in the coal chemical industry.
In conclusion, the move by chemical companies into the coal sector is a strategic response to rising costs and a long-term bet on the future of coal-based chemical production. By acquiring coal mines, they are not only stabilizing their supply chains but also seizing opportunities in a rapidly evolving industry. This trend is likely to continue as the demand for coal chemicals grows and the need for energy security becomes more pressing.
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