China’s decade-plus quest to replace oil with coal in chemicals production is paying off for industry leader Ningxia Baofeng Energy Group, which pulled in record profits as crude prices soared owing to the Middle East War.

Baofeng, which accounts for about a third of China’s coal-to-chemicals capacity, recorded first-half profit of 9.73-billion yuan ($1.4-billion), it said in an exchange filing Wednesday. That compares to 5.72-billion yuan in the same period last year.

The second quarter, when oil prices soared to a four-year high amid trade disruptions through the Strait of Hormuz, was particularly good for the company. Its net income was 6.1-billion yuan, according to Bloomberg calculations, higher than any previous three-month period since the company listed in 2019.

“Crude oil prices rose rapidly and were highly volatile, significantly increasing feedstock costs for oil-based olefins,” Baofeng said in its earnings statement. “Domestic coal prices increased moderately, and feedstock costs for coal-to-olefins production rose only slightly.”

Coal-to-chemicals plants convert the solid fuel into synthetic gas, liquid fuels and chemical feedstocks for products from textiles to building materials. Coal accounts for about 85% of China’s methanol and ammonia production, according to the International Energy Agency. The industry used about 390-million tons of coal in 2024, according to the Centre for Research on Energy and Clean Air.

While the technology dates back more than a century, China’s push into the sector began in earnest last decade amid growing concern about the nation’s dependence on imported oil. After a brief slowdown earlier this decade, the sector is once again in expansion phase as Beijing puts supply security at the center of its energy strategy.

The sector enjoys government support not only because it helps cut down on oil and gas imports but also because it contributes to economic development in poorer coal-rich regions like Inner Mongolia, Xinjiang and Ningxia, where Baofeng is based.

The company has about 5.2-million tons a year of coal-to-olefins capacity, about a third of China’s total, according to Morgan Stanley analysts inlcuding Jack Lu. Its access to cheap coal resources mean it doesn’t need sky-high oil prices to be profitable — it’s cash generative even when Brent is in the $30s a barrel, Lu said in an April note.