Can coal prices drive up fertilizer prices?

Thread Content

Fertilizer companies, especially those producing nitrogen fertilizers, are greatly affected by the coal market. In China, over 70% of urea is produced using coal as a raw material, and more than 90% of ammonium carbonate is also manufactured from coal. Coal serves as the fuel for fertilizer production; in some nitrogen fertilizer manufacturers, coal accounts for more than 50% of the production costs. Fluctuations in coal prices have a direct impact on these companies’ production costs. Data shows that the current price of anthracite at fertilizer plants is around 985 yuan per ton (the same unit applies hereafter), representing a year-on-year increase of 33.11% and an increase of 8.24% compared to February ； The price of bituminous coal at the factory is 690 yuan, up 84.05% on a year-on-year basis. So, will an increase in coal prices this time lead to higher fertilizer prices? 　　Limited production drives up coal prices Since March, the prices of many commodities have been falling, but the coal market has reversed its slow downward trend since the beginning of the year and has continued to rise. On March 22, the Bohai Rim thermal coal price index closed at 606 yuan, up 7 yuan on a month-on-month basis. This marked the fourth consecutive increase, with a cumulative rise of 19 yuan. 　　Coal analysts say that the price increase is mainly due to stricter safety inspections and limited coal production. At the beginning of March, a national meeting was held; mining accidents occurred in Shaanxi, Shanxi, Guizhou, Hunan and other regions. As a result, safety inspections in coal mines were intensified, and the production scale of those still in operation as well as the restart process of those that had stopped operating were strictly controlled. This led to a further reduction in coal supply, with less coal available for transportation from the main producing areas. Queues at mine exits to wait for goods became common, and Guizhou imposed restrictions on the export of coal to ensure an adequate supply. 　　Additionally, port inventories are at low levels, and there is a strong desire on the part of downstream users to restock, which has driven up coal prices. The coal inventory at Qinhuangdao Port has remained below 5 million tons for 23 consecutive days, with the waiting time for certain types of coal exceeding one week. Against the backdrop of high daily consumption and low inventory levels, downstream power plants are becoming increasingly eager to restock, accelerating the pace of coal procurement from northern regions. 　　The restart of fertilizer manufacturers has little impact. Overall, rising coal prices exert a greater boosting effect on fertilizer prices. Taking Shandong, the leading market for urea, as an example, the ex-factory price is likely to remain above 1,600 yuan in the short term, but rising coal prices have little impact on increasing urea prices. There are three main reasons: First, the overall increase in coal prices has been modest. Last year, from August to October, coal prices rose by 300–400 yuan; this round of increase was in the range of several dozen yuan, with the highest increases being around 100 yuan. 　　Second, coal prices may fall in the future. Many market analysts believe that after April, the south will enter a rainy season, leading to a significant increase in hydroelectric power generation, a decrease in thermal power generation, and a drop in coal demand. 　　Third, it has little impact on the operation of fertilizer companies. Since the current price of urea is **higher than it was during the same period last year, companies are generally able to turn a profit. Even with rising coal prices, they can generally absorb those costs on their own. Although coal prices are rising, many coal-based fertilizer plants that had stopped operating in regions such as Guizhou, Inner Mongolia, and Xinjiang are resuming production. 　　It is also understood that as the weather warms up and demand for domestic natural gas decreases, some manufacturers of urea using gas will resume production. Xinjiang Tashihua’s urea production facility is scheduled to resume operations in April, while Inner Mongolia Tianye Chemical and Ordos United Chemical will also restart production in the near future. According to a survey by the China Nitrogen Fertilizer Industry Association, the operating rate of urea production enterprises across the country in the third week of March was 59.06%, an increase of 1.95% on a weekly basis. Among them, the operating rate for those using coal as raw material was 63.3%, while that for those using gas was 48.2%, with increases of 0.47% and 5.72% respectively. 　　The decline in international fertilizer prices affects the domestic market. Despite the increasing supportive effect of rising coal prices, the continuous drop in international fertilizer prices has an impact on the domestic market. India issued a tender announcement for urea on March 17, and the results of the price inquiries were released on March 24; the lowest price was $222 per metric ton on a CIF basis, which is only equivalent to around 1,420 yuan for urea arriving in China. Currently, the ex-factory prices in regions such as Shandong, Henan, and Hebei range from 1,590 to 1,620 yuan, so the amount of urea awarded contracts for in China will not be large. 　　According to **customs statistics, from January to February this year, China exported a total of 3.3 million tons of fertilizers, a 13% decrease compared to the previous year. Of this amount, 790,000 tons were urea, representing a 61% decline on a year-on-year basis** ； The cumulative exports of potassium sulfate and triple-nitrogen-phosphorus-potassium fertilizers were 2,755 tons and 823 tons respectively, showing year-on-year decreases of 5.2% and 21% respectively. Although export tariffs on nitrogen and phosphorus fertilizers have been removed this year, and the export tariff on nitrogen-phosphorus-potassium compound fertilizers has been reduced from 30% to 20%, the outlook for fertilizer exports remains poor in the face of low prices of imported fertilizers. A poor export situation will inevitably lead to an increase in domestic supply surplus, and low international prices will have an impact on the domestic market as well. 　　Weak domestic demand is a major problem; low international prices make it difficult to export fertilizers ； Domestic demand remains weak; although it is the peak season for fertilizers used in spring plowing, the market does not show signs of strong sales. The root cause remains low prices for agricultural products; not only are grain prices low, but the prices of cash crops such as vegetables and fruits are also low, which reduces growers’ enthusiasm for using fertilizers. A dealer in Hubei said that farmers are currently investing less in farming. Previously, two bags of compound fertilizer with 45% nutrient content were needed per mu to grow peanuts. Last year, the price of peanuts dropped to 4.4–5.0 yuan per kilogram, and this year some farmers, worried that prices might fall further, are not applying fertilizer as thoroughly as before. 　　Another reason why fertilizer prices cannot rise is that there is still inventory of goods purchased at low prices in the past that needs to be sold. Last October and November, some distributors took the opportunity to stock up on a large amount of fertilizer; the price of this fertilizer was 200–400 yuan lower than it is now. This fertilizer sold at lower prices has also started to make its way onto the market, thereby driving down overall market prices. Until these low-priced products are fully sold, fertilizer prices are unlikely to rise. (Zhou Heping)