According to a research report released by Guolian Minsheng Securities, domestic coke production reached 82.55 million tons in the first two months of 2026, representing a year-on-year increase of 0.8%. Data from Mysteel indicates that crude steel production during the same period was approximately 144.27 million tons, up 0.9% compared to the previous year. Currently, profitability in the coke industry has bottomed out. Rising oil prices and tightening chemical supply are boosting margins for coke by-products, which may lead to an earnings recovery for coking companies. Additionally, amid growing global uncertainties, the strategic importance of coal chemical operations is increasing. Companies with diverse and high-end coke by-product portfolios are expected to see valuation improvements.
Key views from Guolian Minsheng Securities are as follows:
Due to weak coke margins, the proportion of by-product output has become a key factor in differentiating profitability across the industry. The main product of coking operations is coke, while by-products include coal tar, methanol, and pure benzene. Through further processing, these can yield industrial naphthalene, anthracene oil, formaldehyde, styrene, caprolactam, and other products. Data from major coking producers show that for every ton of coke produced, around 4–10% coal tar, 4–8% methanol, and 1–5% crude benzene/pure benzene are generated. With coke profits remaining low, leading coking companies have increased their focus on deep processing of by-products, which now significantly influences overall profitability.
Coke by-product margins are being driven higher by rising oil prices and supply constraints, offering considerable profit elasticity: 1) Methanol: On the supply side, escalating tensions in the Middle East could lead to significant supply disruptions. If Iran closes the Strait of Hormuz, approximately 35% of global seaborne methanol trade could be interrupted. Iran is the world's second-largest methanol producer, with most of its output based on natural gas. The South Pars gas field, which has been targeted, accounts for over 80% of Iran’s natural gas production and supplies nearly 80% of the country’s methanol output. With about 17.6 million tons of capacity, Iran represents 9% of global and 63% of Middle Eastern methanol production. As a key party in regional conflicts, Iran’s methanol output may not recover quickly. On the demand side, rising oil prices push up prices of methanol derivatives such as olefins, supporting demand. Supply constraints combined with oil-driven demand could result in methanol prices showing greater elasticity than oil itself.
2) Coal tar: It can be converted into diesel, gasoline, and other fuels through hydrogenation, or further processed into compounds like naphthalene, phenol, and anthracene. As an important substitute for crude oil products, coal tar is highly sensitive to oil price movements.
3) Benzene: Most benzene production follows oil-based routes. In 2023, domestic benzene output was 23.11 million tons, of which 83% was petroleum-based benzene produced through catalytic reforming, ethylene cracking, or toluene disproportionation. Coal-based hydrogenated benzene accounted for the remaining 17%. As a major derivative of crude oil, benzene is significantly influenced by oil prices.
Coke supply and demand remain in a fragile balance, with industry profits at a low point. There is no significant cost pressure in the by-product processing segment. Under the 15th Five-Year Plan, the government is expected to strengthen controls on total coking capacity. New coke capacity additions in 2026 are projected at around 10.28 million tons, significantly lower than the annual average of 23.51 million tons during the 14th Five-Year Plan period and the 19.45 million tons added in 2025. This suggests a notable slowdown in industry supply growth. Domestically, the property sector remains weak, though infrastructure investment growth provides some support for demand. Internationally, increasing anti-dumping cases against Chinese steel and the reintroduction of steel export licensing in 2026 may slow export growth. The coking industry is expected to maintain a weak supply-demand balance with widespread profitability challenges. As a result, coke prices are likely to move in line with coking coal prices, and any cost increases are expected to be passed through, leaving by-product processing margins relatively unaffected.
Recommended companies to watch include: 1) China Risun Group (01907): Strong cost advantages in its main business, large-scale by-product output with high revenue contribution, and significant earnings elasticity during chemical price increases. 2) Shanxi Coking Coal (600740.SH): High proportion of by-product revenue, equity investment in Zhongmei Huajin providing cost advantages in coking coal supply, with the Libi coal mine expected to commence operations in 2026. 3) Meijin Energy (000723.SZ) with a stable operational base, and Shanxi Black Cat (601015.SH) with a high by-product revenue share. Both are worth monitoring for potential earnings improvement driven by by-product margin expansion.
Risks include potential declines in oil and chemical prices due to geopolitical changes, weaker-than-expected demand, and heightened overseas anti-dumping measures.