Shanxi coking coal supply disruptions may lift seaborne metallurgical coal prices; GLEN and BHP have upside leverage but ratings remain Neutral

Overview

This report discusses the coking coal supply disruption following the fatal gas explosion at the Liusenyu coal mine in Qinyuan County, Shanxi, on May 22. Goldman Sachs does not make a judgment on the timing of production resumption, but instead quantifies the potential annualized supply impact, updates the import arbitrage chart for Australian PLV HCC entering China, and assesses the sensitivity of Glencore Plc and BHP Group Ltd. EBITDA over the next 12 months to changes in coking coal prices.

Core views

The core view is that China has reduced its dependence on Australian coking coal in recent years, shifting more toward Mongolian and Russian supply, while Shanxi coking coal plays a critical supplementary role in steel mill coal blends. If the scope and duration of Shanxi shutdowns exceed expectations, steel mills may struggle to maintain the required coke quality and could therefore turn to the seaborne market to procure premium coal, benefiting Australian and Canadian producers. However, seasonal demand weakness caused by India’s monsoon may weigh on spot cargo demand, and China’s import arbitrage is still closed at present, so short-term price upside requires both persistent shutdowns and price trigger conditions to align.

Analysis framework

The report uses three main lines of analysis: event-driven supply shock estimation, import arbitrage spread comparison, and company EBITDA sensitivity analysis. It first estimates the potential supply shortfall from mine capacity, county-level shutdowns, and broader safety inspection scenarios, then compares China CFR prices, Australian FOB prices, and seaborne freight to determine whether import arbitrage is open, and finally measures the earnings leverage of GLEN and BHP using the assumption of a $10/t increase in Queensland metallurgical coal prices.

Methodology notes

• Supply shock estimationAnnualized ROM coal and clean coking coal impact estimation

  Convert the shutdown scope into annualized ROM coal impact and use a 50% wash yield to translate it into clean coking coal impact.

  Based on the accident mine capacity, potential broader shutdowns in Qinyuan County, and scenarios involving mandatory safety inspections, Goldman Sachs estimates the impact could reach as much as 80Mtpa of ROM coal, which translates into about 40Mt of clean coking coal at a 50% yield, equivalent to about 8% of China’s 2025 domestic coking coal production.

• Price and trade analysisChina import arbitrage calculation

  Compare China CFR prices, Australian FOB prices, and freight to determine whether Australian coal is economical to import into China.

  The report argues that current China prices remain below the full import cost of Australian coal, and rising seaborne freight continues to suppress competitiveness; by Goldman Sachs estimates, China CFR prices still need to rise by about $37/t to potentially incentivize Australian coal imports.

• Company sensitivity analysisSensitivity of NTM EBITDA to Queensland metallurgical coal prices

  Measure the change in next-12-month EBITDA for covered companies from every $10/t increase in metallurgical coal prices.

  Under this assumption, Goldman Sachs estimates GLEN’s NTM EBITDA rises by about $0.2bn, or about 1.2% of GSe EBITDA, while BHP rises by about $0.1bn, or about 0.5%; GLEN has greater leverage because of higher production and a more favorable royalty structure in its Canadian operations.

• Valuation method50/50 blended target price using NAV and EV/EBITDA

  Set the 12-month target price using an equal weighting of net asset value and target EV/EBITDA multiple.

  GLEN.L’s 12-month target price of £6.0/share is based on 50% NAV and 50% 6.5x EV/EBITDA; BHP.L’s 12-month target price of £29/share is based on 50% NAV and 50% 6x EV/EBITDA.

• Goldman Sachs proprietary frameworkGS Factor Profile

  Compare stocks with the market and industry peers using growth, financial returns, valuation multiples, and composite factors.

  This framework uses Goldman Sachs analyst forecasts and standardized rankings to calculate growth, financial returns, valuation multiples, and composite percentiles, providing investment context for a stock’s relative characteristics.

• Goldman Sachs proprietary frameworkM&A Rank

  Use a 1-to-3 score to measure the probability that a company becomes an acquisition target.

  M&A Rank 1 represents a higher M&A probability, 2 represents a medium probability, and 3 represents a lower probability; for Rank 1 or 2 companies, Goldman Sachs typically includes an M&A component in the target price.

• Goldman Sachs proprietary databaseQuantum

  A proprietary database used to access detailed financial statement history, forecasts, and ratios.

  Quantum supports deep single-company analysis and can also be used for cross-company, cross-industry, and cross-market comparisons.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Seaborne metallurgical coal

  Potential beneficiary asset

  Strengths

  If China’s domestic coking coal supply remains constrained, steel mills may shift toward seaborne premium tonnage, supporting prices.

  Weaknesses

  China’s import arbitrage remains closed at present, and higher freight rates weaken Australian coal competitiveness.

  Comparison

  Compared with Mongolian and Russian overland supply, seaborne premium coal can be used to supplement blend quality, but the cost threshold is higher.

  Risks

  A rapid production resumption in Shanxi, seasonally weaker Indian demand, or further increases in freight rates could all weaken price upside.

• Glencore Plc (GLEN.L)

  Covered company with higher price upside leverage

  Strengths

  Has metallurgical coal exposure, and most of its metallurgical coal comes from Canadian EVR, which has an all-in margin advantage of about $15/t versus Queensland peers; under a +$10/t price assumption, NTM EBITDA rises by about +$0.2bn.

  Weaknesses

  The stock is still rated Neutral, and the report does not view the short-term supply disruption as a certain catalyst for a long-term earnings re-rating.

  Comparison

  Compared with BHP, GLEN has stronger price leverage because of higher production and a more favorable Canadian royalty structure.

  Risks

  Coal, copper, and zinc price volatility, operational risks, logistics challenges in the marketing division, cost inflation, and uncertainty around M&A strategy.

• BHP Group Ltd. (BHP.L/BHP.AX)

  Covered company that benefits but with lower leverage

  Strengths

  Has metallurgical coal exposure, and if seaborne prices recover, NTM EBITDA can receive a positive contribution.

  Weaknesses

  Under a +$10/t Queensland metallurgical coal price assumption, NTM EBITDA rises only about +$0.1bn, or about +0.5%, with lower leverage than GLEN.

  Comparison

  Compared with GLEN, BHP has weaker transmission from rising coal prices due to Queensland royalties in Australia and its asset mix.

  Risks

  FX, commodity price, operating cost, and capex volatility, project execution, fiscal risks, external M&A, and Samarco-related remediation costs.

• Chinese steel mills

  Potential demand shifter

  Strengths

  Can respond to domestic supply shortages by adjusting import sources and coal blend structures.

  Weaknesses

  Shanxi coal plays a critical role in forming qualified coke when blended with Russian and Mongolian coal, so supply losses may create quality constraints.

  Comparison

  China has already reduced its dependence on Australian coking coal in the past and used more Mongolian and Russian coal; if Shanxi supply is damaged, the importance of Australian premium coal may rise again.

  Risks

  Import costs, seaborne freight, coal blend availability, and the duration of regulatory inspections all affect procurement decisions.

• Mongolian coking coal supply chain

  Alternative supply source for China

  Strengths

  Exports to China were up about 70% YoY in Jan-Apr 2026, showing clear short-term supply growth.

  Weaknesses

  Transport from mines to the border is highly dependent on trucks, with logistics capacity constrained by diesel prices and availability.

  Comparison

  Compared with seaborne Australian coal, Mongolian coal is closer to China by land and currently growing faster, but transport bottlenecks are more pronounced.

  Risks

  Diesel prices and availability in 2026H2 may create additional supply risks.

Key data

• Coal mine accident date2026-05-22A fatal gas explosion occurred at the Liusenyu coal mine in Qinyuan County, Shanxi.
• Accident mine capacity~1.2MtpaCapacity of the directly affected mine.
• Potential ROM coal shutdown impact in Qinyuan County~25Mt ROM annualisedThe report states broader county-wide shutdowns could affect about 25Mt of annualized ROM metallurgical coal supply.
• Broader safety inspection scenario impact~80Mtpa ROMIf mandatory temporary safety shutdowns or inspections are triggered, the total impact could approach 80Mtpa of ROM coal.
• China 2025 domestic coking coal production~480MtUsed to measure the share of potential supply impact.
• Wash yield assumption50%Used to convert ROM coal impact into clean coking coal impact.
• Potential annualized clean coking coal impact~40Mt, about 8%Equivalent to about 8% of China’s 2025 domestic clean coking coal production.
• China CFR increase needed to open Australian coal import arbitrage~$37/tChina CFR prices need to rise by about another $37/t to be sufficient to incentivize Australian coal imports.
• Mongolia export changeabout +70% YoY in Jan-Apr 2026Current import data show Mongolia’s exports to China rose sharply year over year, but transport from mines to the border is highly dependent on trucks.
• GLEN metallurgical coal price sensitivity+$10/t corresponds to about +$0.2bn NTM EBITDA, about +1.2% GSe EBITDAGLEN has greater leverage due to higher production and royalty advantages at Canadian EVR.
• BHP metallurgical coal price sensitivity+$10/t corresponds to about +$0.1bn NTM EBITDA, about +0.5%BHP also benefits from a recovery in seaborne coal prices, but with lower leverage than GLEN.
• All-in margin advantage of GLEN’s Canadian business versus Queensland peers~$15/tThe report states the EVR business is not subject to Queensland’s high royalty burden.
• GLEN.L rating and target priceNeutral; 12-month target price £6.0/shareThe target price is set using 50% NAV and 50% 6.5x EV/EBITDA.
• BHP.L rating and target priceNeutral; 12-month target price £29/shareThe target price is set using 50% NAV and 50% 6x EV/EBITDA.

Impact & implications

If Shanxi supply disruptions persist, the most direct impact is that Chinese steel mill coal blend structures may come under pressure, especially where Russian and Mongolian coal require Shanxi coal supplementation to meet coke specifications. This could increase demand for seaborne premium coking coal and improve the pricing environment for Australian and Canadian producers. At the equity level, GLEN has greater metallurgical coal price leverage than BHP because it has higher metallurgical coal output and because the royalty burden of its Canadian EVR business is more favorable than that of Australian Queensland peers. However, import arbitrage has not yet opened, Indian monsoon-related demand weakness, higher freight rates, and uncertainty over the timing of production resumption will all limit short-term price transmission.

Risks

• If Shanxi shutdowns recover quickly, the upward pressure on seaborne coking coal prices may fade.
• India’s monsoon-driven seasonal decline in spot demand may ease the short-term gap in the seaborne market.
• If China CFR prices do not rise by about another $37/t, Australian coal import arbitrage may remain closed.
• Rising seaborne freight will continue to weaken the competitiveness of Australian coal versus Chinese domestic coal and overland imported coal.
• The Mongolian supply chain depends on truck transport, and diesel prices and availability may affect exports in 2026H2.
• Covered companies face risks from price volatility in commodities such as coal, copper, and zinc.
• Operational uncertainties include labor risks, technical disruptions, extreme weather, and project execution timelines.
• Industry cost inflation may push up capex and operating expenses.
• Both GLEN and BHP face risks related to M&A, fiscal matters, FX, and company-specific disclosure issues.

What to watch

• The scope of shutdowns and timing of production resumption in Qinyuan, Shanxi and the broader Shanxi coal mining region.
• Whether regulatory safety inspections expand from voluntary shutdowns to mandatory temporary shutdowns.
• Whether China CFR coking coal prices rise by about another $37/t and open Australian coal import arbitrage.
• The impact of changes in Australian FOB prices and seaborne freight on the economics of Chinese imports.
• Whether Chinese steel mill coal blend demand shifts back toward Australian or Canadian premium seaborne coal.
• Whether Mongolia’s high export growth in Jan-Apr can continue, and whether diesel prices and truck transport become bottlenecks.
• Whether spot procurement demand recovers after India’s monsoon season.
• The actual realization of EBITDA changes at GLEN and BHP from metallurgical coal price movements.