China's largest coal-to-chemicals producer reported record first-half profits of approximately $1.4 billion, as elevated international crude oil prices strengthened the economic case for converting coal into chemical products.

According to Bloomberg, Ningxia Baofeng Energy Group Co. — which accounts for roughly one-third of China's coal-to-chemicals output — posted an especially strong second quarter, coinciding with a spike in oil prices driven by disruptions to flows through the Strait of Hormuz. The first-half profit figure represented nearly a twofold increase compared with the same period a year earlier.

"Crude oil prices rose rapidly and were highly volatile, significantly increasing feedstock costs for oil-based olefins," the company stated in its first-half report, as quoted by Bloomberg. "Domestic coal prices increased moderately, and feedstock costs for coal-to-olefins production rose only slightly."

The broader coal-to-chemicals sector received a substantial boost from the Middle East conflict. Sector stocks climbed 30% between late February and mid-March, Reuters reported at the time, as investors responded favorably to the industry's capacity to produce fertilizers and other petrochemicals from coal rather than petroleum.

The windfall underscores a strategic advantage for China, the world's largest coal producer and top crude oil importer. Coal-to-chemicals conversion — which gasifies coal to synthesize products such as olefins, methanol, and ammonia traditionally derived from petroleum or natural gas — allows Beijing to leverage abundant domestic reserves to reduce exposure to imported energy costs. According to data from the International Energy Agency cited by Bloomberg, China already produces 85% of its methanol and ammonia from coal. Coal prices have also risen on the back of stronger demand, yet they remain substantially lower than crude oil and natural gas prices, further reinforcing the cost advantage of coal-based chemical production.

That momentum is likely to persist, as Middle East supply disruptions show little sign of imminent resolution. Although oil prices have eased from their spring peaks, they remain notably higher than pre-war levels, continuing to underpin the competitiveness of coal-to-chemicals production. However, the industry's expansion intersects with China's dual carbon goals of peaking emissions before 2030 and achieving carbon neutrality by 2060, as coal-to-chemicals production is significantly more carbon-intensive than conventional petrochemical routes — a tension that could shape future policy and capacity decisions.

Chinese energy companies are pursuing additional avenues beyond conventional coal-to-chemicals conversion. Earlier this year, Reuters reported that PetroChina is developing a project to extract gas from coal rock, targeting output of 30 billion cubic meters by 2035.

By Irina Slav for Oilprice.com