China Coal Energy Logs Higher March Coal Sales, But Challenges Linger in Chemical Division

China Coal Energy Co (HK:1898) reported a 7.4% year-on-year rise in commercial coal production and a 3.3% increase in sales volumes for March 2025, marking robust operational performance amid a surge in China’s domestic coal output. However, mixed results in its chemical division and broader macroeconomic headwinds underscore the complexities facing the sector.

Coal Production and Sales: Growth Aligned with National Trends

The company’s commercial coal sales reached 24.8 million metric tons in March, up from 24.0 million tons in March 2024. This growth mirrors China’s record-breaking coal production in March, which hit 440.58 million metric tons (a 9.6% YoY increase). National coal output has been bolstered by falling domestic prices—reaching a four-year low of ¥676/ton—and declining imports, which fell 6% to 38.73 million tons in March. Lower import volumes reflect both high port inventories and reduced demand from industries like steel production.

The company’s coal sales growth is particularly notable given that China’s coal imports for the first quarter of 2025 declined by 0.9% compared to the prior year. This suggests domestic producers like China Coal Energy are capitalizing on reduced foreign competition.

Chemical Division: Resilience in Methanol, Headwinds in Petrochemicals

While coal operations thrived, the chemical division faced uneven results:
- Methanol and ammonium nitrate production rose significantly, likely driven by demand from industries like agriculture and manufacturing.
- Polyethylene and polypropylene sales fell, reflecting softening global demand and trade-related headwinds. For instance, U.S. tariffs on Chinese goods—including petrochemicals—remain elevated at 245%, crimping export opportunities.

This divergence highlights the company’s dual exposure to coal (a domestic staple) and chemicals (more vulnerable to global cycles).

The Bigger Picture: China’s Coal-Driven Energy Strategy

China’s coal sector remains a cornerstone of its energy policy. National coal output for 2024 hit 4.76 billion tons, up 1.3% YoY, and consumption grew 1.7%. Despite climate commitments, Beijing has extended approvals for coal-fired power plants until 2027, signaling coal’s enduring role as a baseload energy source.

This policy backdrop supports China Coal Energy’s coal operations but complicates its chemical ambitions. The National Coal Association projects coal consumption to peak around 2028, implying a limited runway for growth unless the company pivots to cleaner technologies.

Investment Implications: A “Hold” Amid Mixed Signals

The stock currently trades at a market cap of $17.28 billion, down 11.86% year-to-date, reflecting investor skepticism about its chemical division and broader macroeconomic risks. TipRanks’ “Hold” rating underscores the cautious outlook.

Bulls will point to:
- The company’s 7.4% coal production growth, aligning with strong national trends.
- Resilience in ammonium nitrate and methanol, which may benefit from stimulus-driven industrial demand.

Bears will cite:
- Declining polyethylene/polypropylene sales, which could worsen if global trade tensions persist.
- A stock price that has underperformed broader energy indices, suggesting investors are pricing in long-term risks like coal’s eventual decline.

Conclusion: Coal Power Persists, but Transition Challenges Loom

China Coal Energy’s March performance demonstrates its ability to grow coal production in a supportive domestic market. However, the chemical division’s struggles and the sector’s long-term transition to cleaner energy sources create uncertainty.

Investors should weigh two critical data points:
1. National coal demand: China’s coal consumption is on track to hit 4.8 billion tons in 2025, supporting the company’s core business.
2. Chemical division profitability: Methanol and ammonium nitrate margins must offset losses in petrochemicals, which face structural headwinds.

While the “Hold” rating reflects these mixed signals, the stock’s valuation—trading at just 4.2x 2024E EBITDA—could make it a candidate for a strategic “buy” if coal prices rebound or the chemical division rightsizes its operations. For now, the path to outperformance remains narrow.