HK Stock Market Move | Coal stocks continue to rise as surging oil and gas prices trigger the energy substitution effect, which is expected to drive coal prices up out of season.

Coal stocks continue to rise. As of the time of writing, Yankuang Energy Group (01171) rose by 5.07% to HK$16.16; SHOUGANG RES (00639) rose by 3.33% to HK$3.41; YANCOAL AUS (03668) rose by 2.86% to HK$43.16; China Coal Energy (01898) rose by 2.11% to HK$14.49. On the news front, the surge in oil and gas prices due to the US-Iran conflict has triggered an energy substitution effect. Orient released a research report stating that the transmission in the coal market is reflected in the rise in fuel costs leading to higher shipping costs and the soaring natural gas prices prompting some regions to increase coal-fired power generation to replace expensive natural gas, which is expected to drive coal prices up out of season. Founder released a research report stating that the transmission of oil and gas prices to coal is mainly through coal chemical and power generation, judging from the coal/oil ratio. Currently, the Australia coal price/Brent crude oil price ratio is about 1.66, which is at around the historical 56th percentile. Geopolitical factors often lead to price hikes in energy, and both the coal-oil ratio are showing an upward trend. We believe this is mainly because most countries have well-established crude oil reserves, and the primary function of coal is for power generation, which is more rigid in demand compared to oil, making the coal supply-demand ratio more inflexible than oil.