China’s Coal-Based Petrochemical Strategy Reaps Windfall from Oil Surge

China’s long-term investment in coal-to-chemicals is proving increasingly profitable as high and volatile crude oil prices strengthen the cost advantage of coal-based production. The sharp rise in oil prices has increased costs for conventional petrochemical producers, while domestic coal prices have seen comparatively modest gains, improving margins for coal-to-olefins producers.

Ningxia Baofeng Energy Group, one of China’s leading coal-to-chemicals producers, reported a record net profit of CNY9.73 billion ($1.4 billion) for the first half of 2026, compared with CNY5.72 billion during the same period last year. The company’s performance strengthened significantly in the second quarter, when disruptions to trade through the Strait of Hormuz pushed crude prices to a four-year high. Baofeng recorded CNY6.1 billion in net profit during the quarter, marking its strongest quarterly result since its 2019 stock market listing.

The rally in crude oil has significantly changed the cost balance between competing olefin production methods. Higher oil prices have raised naphtha and other feedstock costs for conventional oil-based olefin producers, putting greater pressure on their margins. Meanwhile, coal prices in China have risen much less sharply, allowing coal-to-olefins producers to maintain a stronger cost position.

Baofeng said higher and highly volatile crude prices had significantly increased feedstock costs for oil-based olefin production, while its coal-based production costs had risen only marginally. This widening gap has become particularly important as elevated energy prices continue to challenge the profitability of conventional petrochemical plants.

Coal-to-chemicals technology converts coal into synthesis gas, which can then be used to produce products such as methanol, ammonia and olefins. China has invested heavily in this sector to reduce its dependence on imported crude oil and strengthen domestic energy and feedstock security.

Although investment in the industry slowed earlier this decade, development has regained momentum as supply security has become a greater priority. Coal remains particularly important in several chemical value chains, with around 85% of China’s methanol and ammonia production based on coal. The country’s coal-to-chemicals sector consumed approximately 390 million tonnes of coal in 2024, highlighting its significant role in China’s industrial economy.

The industry also supports industrial development in coal-rich regions such as Inner Mongolia, Xinjiang and Ningxia, helping create domestic demand for coal while reducing dependence on imported energy and petrochemical feedstocks.

Baofeng has emerged as one of the largest beneficiaries of this market environment. The Ningxia-based producer operates around 5.2 million tonnes/year of coal-to-olefins capacity, accounting for roughly one-third of China’s total capacity. Its access to domestic coal gives it a significant cost advantage, even when crude prices are substantially lower.

With crude oil currently trading well above levels at which the company can reportedly remain cash-generative, the profitability gap between coal-based and conventional oil-based petrochemical production has widened further, giving China’s coal-to-chemicals strategy a strong economic boost.

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