China Coal turns to chemicals as profits shrink

China Coal Energy is stepping up investments in downstream coal-to-chemicals projects amid an oversupply and declining coal prices that have seen a third of mainland miners mired in losses.

Chairman Wang An said the budget this year for projects to expand chemicals production had for the first time exceeded that for coal mines.

"Coal is a cyclical commodity whose price volatility brings big swings in profits and even periodic losses," he said. "We need to extend our business to power generation and chemicals production."

China Coal has budgeted 17.4 billion yuan (HK$21.9 billion) for coal-to-chemicals projects this year, compared with 3.2 billion yuan for coal mine development.

The chemicals include methanol, polypropylene and polyethylene - base chemicals traditionally produced from crude oil. Mainland firms have begun commercialising plants that use coal as feedstock in recent years since the country has ample coal but little oil. China Coal also makes urea from coal.

With coal prices dropping by a third since 2011, coal-to-chemicals projects have become more lucrative but they carry risks.