CITIC SEC: European natural gas prices soar, heat pumps usher in a turning point for recovery

CITIC SEC released a research report stating that due to the escalation of geopolitical conflicts, the impact of natural gas supply shocks may persist in the long term. In March, European gas prices soared by 92.4%, significantly boosting the economics of heat pumps. Currently, the clearance of heat pump inventories in Europe is basically completed, coupled with the landing of a 46 billion EU subsidy and increasing exports from China to Europe, the resonance of "high gas prices + policy subsidies + inventory cycle" may have already led to a bottoming out and resurgence in European heat pump demand, ushering in a turning point for recovery. Key points from CITIC SEC: - European natural gas prices surged due to geopolitical conflicts. - In March 2026, European natural gas prices surged significantly due to the "halt of Qatar LNG supply + obstruction of traffic in the Strait of Hormuz". According to Yahoo Finance, the Netherlands TTF futures price rose from 31.6 euros/MWh on February 27 to 60.8 euros/MWh on March 20, a cumulative increase of 92.4%. Qatar's annual LNG exports are approximately 77-80Mtpa, accounting for about 19-20% of global supply, and the majority needs to be transported through the Strait of Hormuz. The strait serves as one of the most important maritime bottlenecks for global natural gas trade, and any military threat, detour, insurance tightening, or decrease in passage efficiency will compress global LNG marginal supply. The current war has evolved from simply logistics disruption to a double impact of "blocked passage + supply interruption" with damage to Qatar's liquefaction and export facilities, making the impact of the Hormuz risks on European gas prices likely to persist in the long term. - The high gas prices further boost the economics of heat pumps. - Heating heat pumps use a "heat transport" method for heating, with an energy efficiency ratio of 3-5, meaning 1 unit of electricity can obtain 3-5 units of heat, making it the optimal heating solution in Europe. Based on data from GlobalPetrolPrices, using the 2025 European average electricity price of $0.27 per kWh and natural gas price of $0.99 per cubic meter, the research estimated that under normal gas price conditions, using a heat pump for heating could save about $1977 annually compared to directly using natural gas for heating; with the current TFF prices, the annual savings amount can expand to $4310 (assuming electricity prices remain constant). Influenced by the geopolitical situation, energy price fluctuations have significantly improved the operational economics of heat pumps compared to traditional gas boilers, with annual operating cost savings having doubled from before. - Under the resonance of "high gas prices + policy subsidy cycle + channel inventory cycle", heat pump demand may have already hit bottom and started to rebound. - The clearance of heating equipment inventories in Europe is almost complete, and besides the UK and Germany, various European countries are in the process of implementing heat pump subsidy policies. According to the European Commission, the EU will invest 46 billion (approximately RMB 351.3 billion) in subsidies for clean technologies such as heat pumps. It is expected that with the distribution of heat pump subsidies in various European countries, the demand for heat pumps in Europe is likely to experience a recovery. According to data from the General Administration of Customs, China's heat pump export amount has continued to achieve double-digit growth, with a further increase in year-on-year growth rate to 59% in December 2025, showing strong growth momentum. - Core component suppliers are expected to benefit in the long term. - The core components of heat pumps in China already have the ability for domestic production. In the field of scroll pumps and valves, Chinese brands are approaching the world's leading level and are entering the supply chain of foreign heat pump manufacturers. In the future, they are expected to continue benefiting from the growth of the global heat pump market. The main components of heat pumps are compressors/scroll pumps/valves/controllers, with scroll compressors being a major application category for heat pumps still dominated by foreign brands. Chinese brands are rising to replace foreign competitors in this product category. Scroll pump and valve manufacturers have a clear growth trajectory, with scroll pump manufacturers successfully entering the European supply chain, and controller companies increasing their market share in Europe, all poised to benefit from the growth of the global heat pump market. Investment strategy: - Complete machine manufacturers: The European heat pump supply system is relatively closed, with short-term supply-demand imbalances and domestic complete machine manufacturers engaged in OEM production. However, foreign investment in Europe is accelerating production expansion. In the short term, attention should be paid to whether domestic complete machine manufacturers will face supply chain return issues after European manufacturers complete production expansion. In the medium to long term, attention should be paid to whether the domestic heat pump market will replicate the growth trajectory of the air conditioning industry. From the perspective of the development of the HVAC industry, the research believes that players with scale advantages and channel resources will ultimately benefit the most. Therefore, although the short-term performance elasticity of leading heat pump companies is relatively small, the research believes that the long-term penetration logic of heat pumps and the ultimate structure will still be favorable to these leading enterprises. - Components: The core components of heat pumps currently have the ability for domestic production. In the fields of scroll pumps and controllers, Chinese brands are approaching the world's leading level and entering the supply chain of foreign brands. They are expected to continue benefitting from the growth of the global heat pump market in the future. With the expected return of heat pump demand, the growth momentum of scroll pump and controller manufacturers is clearer, with scroll pump and controller companies already successfully entering the supply chains of European heat pump manufacturers, avoiding the risk of supply chain return and poised to benefit from the growth of the global heat pump market. Risk factors: - Risks of overseas market growth falling short of expectations - Risks of a substantial drop in fossil energy prices - Risks of increased tension in shipping capacity - Risks of significant increases in raw material prices - Risks of sudden changes in international trade situations - Risks of subsidies policies falling short of expectations - Risks of intensifying competition.