The massive coal-burning boom that once underpinned China's economic rise is finally slowing down. But there are other uses for this fossil fuel, and the war in Iran is giving a big boost to one of the key tracks. The conflict has devastated much of Asia's petrochemical industry - which relies heavily on Middle Eastern crude to make raw materials for everything from PVC pipes to paracetamol. The near-stop traffic in the Strait of Hormuz has pushed up production costs and even caused supply shortages in some categories.
An aerial shot of an open-pit coal mine in Inner Mongolia, China, with mining trucks and excavators parked inside the mine.
But this war has brought dividends to China's coal-to-chemical and coal-to-liquid fuel manufacturers. They are not only protected from the impact of rising crude oil prices, but also benefited from higher product selling prices, and are now making every effort to expand production capacity.
Coal demand in the chemical industry rose 11% year-on-year in April, according to energy research group McCloskey. Shares of coal chemical companies have soared since the outbreak of war in Iran, while their peers that rely on crude oil have languished.
Even before the Iran crisis broke out, the coal chemical industry had already offset the initial results achieved by decoupling China's economic growth from fossil energy consumption. Data from the Energy and Clean Air Research Center show that the chemical industry was the main reason for China’s rising industrial carbon emissions last year. The non-profit organization estimates that China's chemical industry consumed 440 million tons of coal last year, almost equal to the total annual coal demand in the United States.
The rise of China's coal chemical industry stems from the desire of coal companies to open up new markets on the one hand, and in line with Beijing's strategic demands for energy security on the other. Chemical market analysis institutions pointed out that for China, which will never be able to achieve self-sufficiency in oil, the ability to produce chemicals from coal is a crucial geopolitical cushion.
The idea of turning black coal into a variety of practical products stems from the same energy security anxieties a century ago. Many of the core processes of modern coal chemical industry were developed by German scientists in the early 20th century. During World War II, oil-starved Nazi Germany relied on this type of technology to convert coal into fuel and even margarine. Today, South Africa, which is rich in coal resources, also uses the same core technology to produce transportation fuel.
Now, another war has confirmed China's vision of treating coal chemical industry as a key strategic industry. The improvement in corporate profit margins also further supports the investment logic of new coal chemical projects.