According to analysis from CITIC Securities, escalating geopolitical conflicts are expected to cause prolonged disruptions to natural gas supplies. In March, European gas prices surged by 92.4%, significantly enhancing the economic appeal of heat pumps. Inventories of heat pumps in Europe have now been largely cleared. Combined with the EU's €4.6 billion subsidy program and a sharp increase in Chinese exports to Europe, heat pump demand appears to have bottomed out and is entering a recovery phase, driven by the combined effect of high gas prices, policy subsidies, and inventory cycle dynamics. The main points from CITIC Securities are as follows:

Geopolitical tensions have driven a sharp increase in European natural gas prices. In March 2026, due to the halt of Qatari LNG supplies and disruptions to shipping through the Strait of Hormuz, European gas prices rose dramatically. Based on Yahoo Finance data, the Dutch TTF futures price increased from €31.6/MWh on February 27th to €60.8/MWh on March 20th, a cumulative increase of 92.4%. Qatar exports approximately 77-80 million tonnes per annum (Mtpa) of LNG, accounting for about 19%-20% of global supply, with the vast majority requiring passage through the Strait of Hormuz. As one of the most critical maritime bottlenecks for global gas trade, any military threats, rerouting, tighter insurance, or reduced transit efficiency in the Strait can constrain marginal global LNG supply. The conflict has now escalated to the point of damaging Qatari liquefaction and export facilities, transforming the natural gas disruption from a logistical issue into a dual shock of "blocked通道 + supply interruption." Furthermore, due to constraints in liquefaction capacity, shipping capacity, import terminals, and long-term contracts, the natural gas market has weaker short-term substitution and rebalancing capabilities compared to the crude oil market. Therefore, the impact of risks related to the Strait of Hormuz on European gas prices is likely to persist.

High gas prices further improve the economics of heat pumps. Heating heat pumps operate by "moving heat," achieving a Coefficient of Performance (COP) of 3-5, meaning 1 unit of electricity can provide 3-5 units of heat, potentially making them the optimal heating solution for Europe. Using data from GlobalPetrolPrices and assuming a 2025 European average electricity price of $0.27/kWh and a baseline natural gas price of $0.99/m³, the analysis calculates that under normal gas price conditions, a heat pump can save approximately $1,977 annually in operating costs compared to direct natural gas heating. When converted using the current TTF price, the annual savings expand to $4,310 (assuming the electricity price remains unchanged). Influenced by the geopolitical landscape, energy price volatility has significantly enhanced the operating economics of heat pumps relative to traditional gas boilers, with the annual operating cost savings now doubling previous levels.

Driven by the resonance of "high gas prices + policy subsidy cycle + channel inventory cycle," heat pump demand appears to have bottomed out and started to recover. The destocking of heating equipment in Europe is now largely complete. Apart from the UK and Germany, various European countries are preparing to introduce heat pump subsidy policies. According to the European Commission, the EU will allocate €4.6 billion (approximately RMB 35.13 billion) in subsidies for clean technology projects, including heat pumps, with expectations for further expansion of subsidy scales. It is anticipated that as these subsidy policies are implemented across Europe, heat pump demand will experience a recovery. Data from China's General Administration of Customs shows that China's heat pump export value continued to achieve double-digit growth in 2025, with the year-on-year growth rate further accelerating to 59% in December 2025, indicating strong momentum.

Core component suppliers are poised for long-term benefits. Core components for heat pumps are now largely capable of being domestically produced in China. In the areas of canned motor pumps and valves, Chinese brands are nearing world-leading levels and have entered the supply chains of foreign heat pump manufacturers, positioning them to benefit continuously from global market growth. The main components of a heat pump are the compressor, canned motor pump, valves, and controller. Scroll compressors are the primary type used in heat pumps, a segment still dominated by foreign companies, although Chinese brands are rising strongly as substitutes. Growth prospects for canned motor pump and valve manufacturers are relatively clear, with canned motor pump suppliers having successfully entered the European supply chain. Controller companies are seeing growing market share in Europe and are expected to benefit long-term from the expansion of the global heat pump market.

Investment Strategy: For complete unit manufacturers: The European heat pump supply chain is relatively closed. Short-term supply-demand mismatches mean Chinese manufacturers are engaged in OEM production. However, foreign companies are accelerating production expansion within Europe. Short-term attention should focus on whether Chinese manufacturers might face supply chain repatriation risks once European capacity expansion is complete. Medium to long-term, the focus is on whether the domestic Chinese heat pump market will follow the growth trajectory of the air conditioning industry. From the perspective of HVAC industry development, the analysis believes that players with scale advantages and channel resources will ultimately benefit more. Therefore, although the short-term earnings impact from heat pumps for industry leaders may be limited, the long-term logic of heat pump penetration and the ultimate industry structure are expected to favor these leading enterprises.

For component suppliers: Core heat pump components are now largely capable of being domestically produced in China. In the areas of canned motor pumps and controllers, Chinese brands are approaching world-leading standards and have integrated into foreign supply chains, positioning them to benefit continuously from global market growth. As heat pump demand recovers, growth momentum for canned motor pump and controller manufacturers is expected to be more pronounced. These companies, having already entered the supply chains of European heat pump manufacturers, can mitigate risks associated with supply chain repatriation and are well-positioned to benefit from the global market expansion.

Risk factors include: slower-than-expected growth in overseas markets; a significant decline in fossil fuel prices; worsening tightness in maritime shipping capacity; a substantial increase in raw material prices; sudden changes in international trade relations; subsidies falling short of expectations; and intensifying competition.