High Oil Prices Deliver a Windfall for China’s Coal-to-Chemicals Industry

China's largest coal-to-chemicals producer announced record-breaking profits for the first half of the year, reaching $1.4 billion as the international price of crude oil surged. Bloomberg reported that Ningxia Baofeng Energy Group Co., which generates about one-third of the country's coal-to-chemicals output, experienced a particularly strong second quarter due to the significant spike in oil prices following the disruption of Strait of Hormuz oil flows. The company's first-half earnings marked a near doubling of profits compared to the previous year.

The surge in crude oil prices and their volatility had a substantial impact on the feedstock costs for oil-based olefins, as highlighted by the company in its first-half statement. Domestic coal prices increased moderately, leading to only a slight rise in feedstock costs for coal-to-olefins production. China's coal-to-chemicals industry has seen a significant boost from the ongoing Middle East conflict, with sector stocks jumping by 30% between the end of February and mid-March, as reported by Reuters.

Investors were drawn to the energy industry's ability to utilize coal for the production of fertilizers and petrochemicals without relying on petroleum.

While oil prices have since moderated from their spring peaks, they remain considerably higher than before the war began, providing continued support for coal-to-chemicals producers. China currently produces 85% of its methanol and ammonia from coal, according to data from the International Energy Agency, as cited by Bloomberg. Although coal prices have risen due to increased demand, they remain significantly lower than crude oil and natural gas prices, further strengthening the case for coal-to-chemicals production.

Chinese energy companies are not resting on their laurels. Earlier this year, Reuters reported that PetroChina was developing a project to extract gas from coal rock, aiming for an output of 30 billion cubic meters by 2035.