China Coal: More Resilient to External Supply Shock This Time
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HSBC assesses that despite Middle East conflicts driving oil and gas prices sharply higher, the impact on China's coal market has been far more muted than during the 2022 Russia-Ukraine crisis. Brent crude surged 44% and JKM gas jumped 36%, lifting Asian coal benchmarks such as Newcastle by 14% and Indonesian GAR4200 by 13%. However, China's domestic QHD5500 price actually declined 2% over three weeks, compared with a 49% spike in the first month of the 2022 conflict.
This resilience stems from substantially improved domestic supply-demand fundamentals. Coal-fired power generation is projected to remain flat in 2026 as sluggish electricity demand growth is absorbed by renewables. Coal-to-chemicals demand constitutes only 8% of thermal coal consumption. Meanwhile, mining capacity has expanded 6% to 60.35 billion tonnes, utilization can rise from 80% to 83% to add 181 million tonnes of output, and inventories at major power groups sit near three-year highs.
Consequently, HSBC raises its 2026 spot price forecast by 10% to RMB 745/tonne, representing 6% year-on-year growth. China Shenhua H/A ratings remain at Hold, with 2026 earnings upgraded 17%. The H-share target price increases from HKD 35 to HKD 42, while the A-share target rises from RMB 41 to RMB 48. Shenhua H-shares trade at 14.4x 2026 P/E, 1.8x P/B, and a 5.2% dividend yield, representing fair valuation. Upside and downside risks hinge on the persistence of global oil and gas price gains.
China Shenhua-H (1088 HK): Hold, target HKD 42.00.
China Shenhua-A (601088 CH): Hold, target RMB 48.00.