Coal to Olefins and Oil to Olefins: Cost Competitiveness Analysis and Market Implications

1. strategic background: market pattern reshaping

the global polyolefin market will undergo a major transformation in 2025. China's coal-based polyolefin scale has exceeded 26%, a record high. There is basically no difference between coal-based and oil-based polyolefins at the level of downstream applications and product performance, but there is a fundamental gap in the cost structure-which is the core driver of the coal-based route's continued erosion of oil-based market share.

Baofeng Energy's financial performance in 2025 is the most visible reflection of this trend. The company's operating income was 48.038 billion yuan, up 45.64 percent year-on-year, while its net profit was 11.35 billion yuan, up 79.09 percent year-on-year. It is worth noting that this strong performance appeared in the overall weak environment of the global chemical industry, which fully proved the lasting vitality of the cost advantage of coal-to-polyolefin.

Coal and oil follow completely different market logic and price fluctuations. After the U. S.-Israeli conflict with Iran in early 2026 drove international oil prices to soar, the cost of naphtha cracking further increased, and the relative competitive advantage of coal-to-olefins was further strengthened. For traders, understanding the cost system of coal-to-olefins has become a compulsory course to predict the medium-and long-term pattern of the market.

Three core drivers of 2. cost competitiveness

raw material costs: significant regional differentiation

the price of coal is the primary variable that determines the cost of coal-based chemicals. The huge differences in coal pricing systems and market structures in various regions of China have directly led to significant differentiation in the cost of coal-to-olefins. Xinjiang and Inner Mongolia due to resource endowment advantages, coal market prices are the lowest, the region's enterprises in the raw material side of the natural cost competitiveness.

Although most coal chemical enterprises support their own coal mines, but the internal cost accounting generally adopts the market price system. Even at the lowest pit price of 210 yuan/tonne, profitability differentiation is still significant for different companies due to differences in resource costs. This is a key detail when comparing and analyzing the competitive landscape.

According to statistics, the coal market price in 5500 shows that Xinjiang is the lowest (about 450 yuan/ton), followed by Inner Mongolia (about 520 yuan/ton), Shanxi is about 600 yuan/ton, and the national average is about 700 yuan/ton. Regional differences directly translate into differences in the competitiveness of enterprises.

Technological progress: rapid decline in unit consumption

technology iterations are the second largest driver of cost downside. SMTO technology evolved from the first generation of coal consumption of about 7.0 (or 7.6 in the case of mixed lignite) to the DMTO-III technology era, the theoretical unit consumption has been reduced to about 6.0, and some advanced devices even achieve a unit consumption level below 5.0. Every technological breakthrough translates directly into cost competitiveness.

In terms of unit consumption 7.08 and coal price of 700 yuan/ton, DMTO-III technology can bring about a 29% reduction in coal cost. The current cutting-edge technologies include: hydrogen supplement and carbon full utilization technology, green hydrogen coupling instead of water gas shift technology, syngas one-step supporting CCUS cycle carbon supplement technology, etc., all through external carbon supplement to further reduce the single consumption of raw coal to less than 5.0, in the reduction of carbon emission reduction targets at the same time, the formation of cost and environmental protection of the dual advantages.

Policy support: long-term subsidy window

policy support is the third factor in the cost system that is often underestimated but has far-reaching actual impact. At the national level, through the five dimensions of financial subsidies, tax incentives, financial support, resource guarantee and technological innovation, eligible projects can receive up to 20% of investment in the central budget, 15% of enterprise income tax concessions, CCUS special subsidies and other support, which can comprehensively reduce the unit olefin cost by 300-1500 yuan/ton.

At the local level, major bases in Inner Mongolia, Ningxia, Gansu, Shanxi, Shaanxi and Xinjiang have targeted concessions. Measures such as electricity price subsidy (reduction of 0.03 yuan/degree), financial subsidy (investment amount 8%) and tax relief (about 15%) can reduce unit cost by 30-1000 yuan/ton. From the policy cycle, the western development income tax concessions continue to the end of 2030, energy conservation and carbon reduction projects until September 2030, local policies are mostly 3-5 years, mostly concentrated in 2027-2030 expires. Northwest enterprises can still enjoy at least 4-5 years of policy dividend window.

Quantification of 3. cost gap and market enlightenment

three factors are systematically quantified: according to the optimal scenario (pit price of 210 yuan/ton, unit consumption of 5), the cost of coal-to-olefin raw materials is about 3000 yuan/ton; overlay 1000 yuan/ton policy subsidy (national 500 + local 500), the comprehensive cost can be reduced to about 2000 yuan/ton.

In contrast, the cost of naphtha cracking to olefins is approximately based on the 2025 average. 6000 yuan/ton; Even if the self-supply model is adopted and the relevant subsidies are enjoyed, the cost can only be reduced to 4500-5000 yuan/ton. And the optimal cost of coal still exists. Significant gap of 2500-3000 yuan/ton. After the oil price soared in early 2026, the gap widened further to 3000-4000 yuan/ton.

It should be emphasized that the above measurements are theoretically ideal. In practice, coal settlements in coal-based enterprises are mostly carried out at market prices, which increases the actual cost to a certain extent. But the core conclusions remain the same: with crude oil above $60/bbl, the coal route has a systematic cost advantage over the oil route as the technology iterates.. This is the fundamental reason why leading enterprises such as Baofeng Energy still recorded a net profit of 11.35 billion yuan in 2025 when the industry as a whole is weak.

Three key recommendations for traders and supply chain practitioners:

1. closely follow the trend of coal price-Xinjiang, Inner Mongolia and other major bases of coal price fluctuations will directly affect the national polyolefin competition pattern
2. focus on technology upgrade nodes-The timetable for the promotion and application of DMTO-III and subsequent consumption reduction technologies determines the rate of cost reduction in coal enterprises.
3. Monitoring subsidy policy changes-2027-2030 policy expiration wave will become a new market differentiation point, early layout is crucial

the continuous increase in the proportion of coal and the continuous strengthening of cost advantages mean that the price competition in the regional market will tend to be fierce, and the price premium space for oil-based polyolefins will be further narrowed. This is the core logic of the evolution of the global polyolefin supply pattern in the next 3-5 years.