According to data, the average cost for oil-based polyethylene (PE) production hovered around 8,800 RMB/tonne from January to July 2026, while the average cost for coal-based PE remained near 6,600 RMB/tonne. Looking ahead to the second half of the year, the profit disparity between oil-based and coal-based PE production is expected to narrow.

From January to July 2026, domestic PE prices followed a pattern of "fluctuation, followed by a rapid surge, and then a fluctuating decline." Early in the year, the market was dominated by consolidation due to the off-season effect of the Spring Festival, resulting in limited price volatility. In March, a sudden escalation in Middle East geopolitical tensions—disrupting shipping in the Strait of Hormuz and causing international oil prices to spike—combined with a sharp drop in imports and voluntary production cuts by domestic petrochemical firms facing high costs, drove PE prices up sharply. Prices remained firm at high levels in early April but came under downward pressure in the latter half of the month as demand weakened and expectations of a de-escalation grew. Between May and June, signs of a temporary easing in geopolitical tensions emerged, and the market gradually returned to fundamentals. Entering July, crude oil prices rose again due to renewed US-Iran tensions, causing PE prices to rebound; however, prices retreated toward the end of the month as expectations for geopolitical de-escalation strengthened. Overall, market trends in the first half of the year were closely linked to geopolitical developments, with cost-side fluctuations serving as the primary driver of price movements.

In the first half of the year, oil-based PE producers generally operated near the break-even point. Data shows that the average production cost for oil-based PE remained around 8,800 RMB/tonne from January to July. Meanwhile, PE spot prices lacked the momentum to rise in tandem with costs, constrained by weak downstream demand and resistance to high prices, resulting in an average profit of 64 RMB/tonne. The period from March to April saw the deepest losses for the oil-based production process; geopolitical conflicts drove a rapid rise in crude oil prices, pushing the theoretical production cost for oil-based producers past the 10,000 RMB/tonne mark at one point. Entering May, expectations for US-Iran peace talks rose and the geopolitical risk premium gradually faded; the resulting decline in crude oil prices lowered production costs, allowing profit margins to recover somewhat. In June, crude oil prices continued to weaken, leading to a further recovery in profit margins for oil-based polyethylene production. However, as tensions between the U.S. and Iran escalated again in July, the resulting rebound in oil prices drove up costs, causing profit margins to contract once more. From January to July, profits for oil-based polyethylene fell by 83.29% year-on-year. The primary reason was that while oil prices surged due to geopolitical conflicts, the prices of finished polyethylene products did not rise commensurately with upstream raw materials; this mismatch between costs and selling prices kept profit margins under sustained pressure.

Regarding the profitability of coal-based polyethylene enterprises, data from JLC indicates that the average cost remained around 6,600 RMB/tonne from January to July, with profits averaging 1,500 RMB/tonne. The average profit for coal-based polyethylene during this period rose by 16.19% year-on-year. The core driver of profitability for the coal-based route is its advantage of cost rigidity; coal prices are subject to domestic policy regulation and exhibit far less elasticity than international crude oil prices. As polyethylene spot prices rose in line with the market, the coal-based route naturally benefited from a "profit scissors" effect—rising selling prices coupled with locked-in costs. In July, coal prices remained stable, and coal-based profit margins stayed high; however, a pullback in polyethylene prices toward the end of the month caused margins to narrow slightly from their earlier peaks.

Looking ahead to the second half of the year, the divergence in profitability between oil-based and coal-based polyethylene is expected to narrow. For oil-based production, uncertainty regarding U.S.-Iran tensions persists. With a significant amount of new domestic capacity coming online in the second half of the year, prices for commodity-grade polyethylene remain under pressure, making it difficult for oil-based enterprises to achieve substantial profits. For coal-based production, coal prices remain relatively firm due to supply-side factors, potentially leading to a narrowing of profit margins compared to the first half of the year. Coupled with the supply pressure resulting from the release of new capacity, the industry's overall profit baseline is expected to shift downward. In summary, while the profit gap between the two production routes is likely to narrow in the second half of the year, the coal-based route will retain its relative cost advantage; the evolution of the geopolitical situation in the Middle East and the pace at which new capacity comes online will be the key variables determining profit trends.

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