Coal Industry Investment Report: The North China Coal Substitution Market Approaches RMB 700 Billion in Size
Release Date:
2017-08-30
Driven by mounting environmental pressures, reducing coal consumption in North China has become imperative. Coal combustion is a major contributor to winter smog in the region, and as environmental constraints continue to tighten, curbing coal use has increasingly emerged as a central pillar of air‑pollution control policy. According to policy targets, China’s share of coal in total energy consumption is slated to decline from 63.95% in 2015 to 58% by 2020—a reduction of 6 percentage points—while in North China, the coal‑consumption share is expected to fall from 75.72% in 2015 to 62.98% by 2020, a drop of 13 percentage points, a pace markedly more aggressive than the national average.
Driven by mounting environmental pressures, reducing coal consumption in North China has become imperative. Coal combustion is a major contributor to winter smog in the region, and as environmental constraints continue to tighten, curbing coal use has increasingly emerged as a central pillar of air‑pollution control policy. According to policy targets, China’s share of coal in total energy consumption is slated to decline from 63.95% in 2015 to 58% by 2020—a reduction of 6 percentage points. In North China, the coal‑consumption share is projected to fall from 75.72% in 2015 to 62.98% by 2020, a drop of 13 percentage points—significantly more aggressive than the national average.
Three key factors are converging, creating a policy window in 2017. First, the “Ten Measures for Air Pollution Control” is entering its final year of implementation, placing immense pressure on the North China region—particularly the Beijing–Tianjin–Hebei area—to meet emission standards. Second, the reform of the environmental protection vertical management system has curbed local protectionism’s interference in environmental monitoring and oversight, strengthening government accountability and clarifying the responsibilities of local environmental agencies. Third, environmental performance has been incorporated into official performance evaluations, with increasingly stringent assessment criteria. Driven by these three factors, 2017 will see a critical policy window for air pollution control in North China, with enforcement expected to be unprecedentedly robust.
The market size for coal substitution in North China is approaching RMB 700 billion. The primary technological pathways for reducing coal consumption comprise five approaches: “coal-to-gas,” “coal-to-electricity,” “coal-to‑geothermal,” “coal-to‑solar,” and energy‑efficiency upgrades. By analyzing the technical feasibility, industrial‑chain structures, and competitive landscapes of these five transformation modes, we project that, during the 13th Five-Year Plan period, their respective potential market sizes will be RMB 170 billion, RMB 130 billion, RMB 110 billion, RMB 260 billion, and RMB 10 billion—totaling nearly RMB 700 billion.
“Coal-to-gas” and “coal-to-lighting” initiatives stand to benefit significantly; we particularly recommend Hangzhou Boiler Co., Ltd., Dayuan Pump Industry, and Jingshan Light Machinery. From the perspective of earnings elasticity, we advise focusing on the “coal-to-gas” sector, as the recovery in market demand is expected to drive incremental earnings for leading companies in this space. Key recommendations include Hangzhou Boiler, a leader in waste‑heat boilers, and Dayuan Pump Industry, a leader in canned motor pumps. In terms of absolute earnings scale, “coal-to-lighting” represents the segment with the largest market potential. We suggest prioritizing companies with high earnings visibility, such as Jingshan Light Machinery, whose subsidiary Suzhou Shengcheng is poised to deliver results that exceed expectations.
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