China’s coal giants pivot to chemicals as conflict disrupts oil supply
Wednesday, April 8 2026 - 08:05 AM WIB
Chinese coal companies are increasingly turning to chemicals manufacturing as a new growth avenue, as conflict in the Persian Gulf disrupts supplies of liquid fossil fuels traditionally used by the industry, Bloomberg reported.
China’s vast coal reserves — which require far fewer imports than oil and gas — are becoming more valuable in the current environment, particularly for industries that rely on crude oil as feedstock.
China Shenhua Energy Co., the country’s largest listed coal miner, is redirecting capital spending toward coal-based olefins — key building blocks for plastics, fibers, and solvents — betting the segment will deliver stronger returns than oil-based production if Middle Eastern disruptions persist.
The shift comes despite an overall capital expenditure budget that has been reduced by 16% from the previous year.
China’s coal-to-chemicals sector has expanded rapidly in recent years, partly driven by the powerful mining lobby seeking to offset declining demand from the power sector amid the rise of renewable energy. At the same time, markets for competing feedstocks such as naphtha and liquefied petroleum gas have tightened.
Shenhua reported a 5.3% decline in net income for 2025 and warned of continued downward pressure on electricity prices this year.
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In response, the company plans to cut coal output by 0.6%, following a roughly 12% drop in average prices in 2025. It is also accelerating expansion of its polyethylene and polypropylene facilities, with annual capacity expected to double to 1.4 million tons by 2027
“Rising oil prices could constrain petrochemical supply, improving demand and competitiveness for coal-to-olefins,” Chief Executive Officer Zhang Changyan said during an earnings webcast last week.
Shenhua has also agreed to acquire $19 billion worth of assets from its parent company, including coal-to-chemicals operations, in a bid to strengthen resilience against China’s accelerating energy transition and growing geopolitical risks, Zhang added.
Coal’s cost advantage over oil in chemicals production is now at its widest since 2015, according to China International Capital Corp. Coal currently accounts for about one-fifth of China’s olefins output, based on data from Ningxia Baofeng Energy Group Co., the country’s largest coal-to-olefins producer.
Baofeng reported a 79% surge in net income last year after expanding annual capacity to 5 million tons.
Chinese oil majors are also entering the segment. Sinopec Group, the country’s largest refiner, has revived a long-delayed coal-to-olefins project valued at more than $3 billion. Meanwhile, its listed unit has cut capital spending on petrochemicals after reporting deeper losses last year.
Editing by Reiner Simanjuntak