Concentrated nitric acid faces total losses; the industry must practice self-discipline to survive

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Concentrated nitric acid is facing total losses; the industry must practice self-discipline to survive. Capacity is growing rapidly, resulting in an oversupply that is inevitable. From 1999 to 2003, the price of concentrated nitric acid remained between 1,200 and 1,400 yuan per ton, but starting in April 2004, the market situation became extremely volatile, with prices soaring rapidly. Within just 8 months, the price reached 2,100 yuan per ton by 2005, an increase of 100 yuan per ton per month on average. In recent years, thanks to the gradual advancements in the production technology of concentrated nitric acid, the threshold for entering this industry has become much lower. With the sharp rise in prices, the huge profit margins in the concentrated nitric acid industry attracted a large amount of capital, leading to a new wave of construction activities. Numerous new and expanded production facilities for concentrated nitric acid emerged one after another, resulting in an increase in production capacity on an unprecedented scale. 　　In 2005, China’s production capacity for concentrated nitric acid was around 1.6 million tons per year, with an annual output of 1.57 million tons, representing a 21% increase compared to the previous year ； In 2006, China planned to add 1.175 million tons per year of production capacity for concentrated nitric acid, which is about two-thirds of the existing capacity; it was the year with the fastest rate of capacity expansion in history (for details on the growth of China’s concentrated nitric acid production capacity, see the article titled “Overcapacity: The Concentrated Nitric Acid Market Suffers Severe Damage” in issue 28 of this magazine from 2006). Although industries that rely on concentrated nitric acid, such as those producing nitro compounds, MDI, TDI, aniline, and dyes, continue to develop rapidly, the demand for concentrated nitric acid is growing at only around 10% – a rate that is far lower than the pace of expansion in its production capacity. As a result, there is an oversupply of concentrated nitric acid in the domestic market. Corporate profits have plummeted, putting their survival at risk. The severe supply and demand imbalance in the concentrated nitric acid market has led to wave after wave of price wars, with product prices gradually approaching the bottom line of production costs, resulting in a sharp decline in industry profits. To reduce losses, companies have continuously cut production, reduced output, or even halted operations since the second half of the year, leading to significant fluctuations in market prices.     1. Sharp drop in market prices At the beginning of this year, the average price of concentrated nitric acid in the market was between 1,800 and 1,900 yuan per ton. Due to the \"expectation risk\" associated with the large number of new production facilities set to come online in 2006, operators entered a competitive phase of price cutting out of fear, resulting in a rapid decline in the price of concentrated nitric acid. By June, the price had dropped to around 1,300 yuan per ton, a decrease of 500 yuan per ton. In the second half of the year, following initiatives by some enterprises in Shandong to \"limit production to maintain prices and save the industry,\" more than a dozen nitric acid manufacturers reduced their production volumes. Additionally, the high temperatures during summer led large nitric acid plants to shut down for maintenance on a frequent basis, which altered the previously surplus market supply and resulted in a brief upward trend in the domestic nitric acid market. However, under the pressure of an oversupply in the overall market, the production cuts implemented by a few companies were not enough to revive the market. As new production capacity continued to enter the market, the supply-demand imbalance for concentrated nitric acid became increasingly severe, causing market prices to drop back to new lows. 　　Considering the past trends in the concentrated nitric acid market, it usually takes 2 to 3 years to recover after such a sharp decline; in the short term, manufacturers will find it difficult to escape the current situation of price-driven competition.     2. Significant increase in production costs The production cost of concentrated nitric acid depends mainly on the price of synthetic ammonia. Currently, the purchase price of synthetic ammonia is between 2,300 and 2,400 yuan per ton, representing an increase of 400 to 500 yuan per ton compared to previous levels, which imposes considerable cost pressures on enterprises. At the same time, the sharp rise in the prices of raw materials, coal, electricity, railway freight, and various auxiliary materials has further increased the production costs of concentrated nitric acid. This year, the coal-electricity linkage plan was introduced once again, resulting in increases in coal and electricity prices across the country to varying degrees. Although the nitric acid industry is not a major energy consumer, its profits are already slim; therefore, any increase in costs only serves to exacerbate its difficulties. The requirements for increased train speeds and safety inspections have led to a significant rise in the shipping costs for products of large nitric acid manufacturers that own their own railway tank cars and dedicated transport lines. Due to the increase in railway speeds, the Ministry of Railways requires enterprises to cover the costs associated with modifying their own tank cars, at around 160,000 yuan per unit. Adding to this are various other expenses such as those related to railway safety assessments, volume measurement for tank cars, and vehicle maintenance. For a nitric acid production facility with a capacity of 200,000–300,000 tons per year, the investment required just for railway dedicated lines and custom-built tank cars can amount to tens of millions of yuan.     3. Sharp decline in profits and severe losses for enterprises Many enterprises entered the concentrated nitric acid production industry or expanded their production capacity in a hasty manner, with a limited variety of products. After the profits from concentrated nitric acid dropped significantly, they were unable to switch to producing other products, leaving them no choice but to reduce production or cease operations, which placed considerable pressure on their survival. The newly built 100,000 t/a direct nitration plant at Jinan Fertilizer Factory Co., Ltd. has been unable to operate due to the pressure resulting from inverted market prices and production costs; recently, only one out of the three nitric acid production units has been able to run. Since the explosion in the aniline system, Sinopec Lanzhou Petrochemical Branch has also been unable to carry out its commissioning plans, as the profits generated from nitric acid products are not sufficient to cover the costs. At present, the total cost of producing concentrated nitric acid is around 1,400–1,500 yuan per ton. Based on the average market price of 1,200–1,400 yuan per ton since April this year, concentrated nitric acid manufacturers are suffering heavy losses. Statistical results show that approximately 70% to 80% of nitric acid manufacturers are currently operating at a loss, while the remaining companies are barely breaking even on the verge of loss. The industry is on the verge of collapse, with calls for self-rescue growing louder. Due to chronic losses, many companies will be forced to change their business areas or go bankrupt; the nitric acid industry, which has relied on years of hard work and effort to develop, may never recover from this situation. Notable figures in the nitric acid industry have repeatedly called for the establishment of a \"Concentrated Nitric Acid OPEC\" to enforce industry self-discipline and take self-help measures, thereby alleviating the survival crisis faced by companies and helping the industry move along a path of healthy development. Recently, at the \"High-Level Forum on the Concentrated Nitric Acid Market and Industry Development\" held by the National Chemical Nitric Acid and Nitrates Technology Cooperation Network, over 30 corporate leaders and marketing experts from 14 large-scale concentrated nitric acid manufacturers across the country shared their views on the survival and development of concentrated nitric acid and its related industries. They proposed that the nitric acid industry should adopt the principles of self-discipline and self-help practiced by the international OPEC organization, enhance communication and cooperation within the industry, take into account the interests of both producers and consumers, oppose unfair competition, eliminate harmful price fluctuations, assume joint responsibility for the industry, pay attention to downstream industries, and ensure stable supply and prices. 　　1. Reduce damage to downstream industries. The concentrated nitric acid industry should take responsibility for the production and development in downstream sectors, properly regulate prices in various sales areas, maintain basic order in market sales as well as stability in supply and demand, and avoid sharp fluctuations in the market ； At the same time, a stable supply must also be ensured to minimize the impact on the normal production and development of downstream enterprises. 　　2. Establish an orderly market mechanism. Unordered market competition can cause significant damage to industries; only by establishing an orderly market mechanism and maintaining relative stability in the market can enterprises enjoy stable profits. This ensures the healthy development of the entire industry, helps to avoid vicious competition among firms, and reduces the use of unfair competitive tactics (such as certain improper promotional methods) to a minimum. 　　3. Actively adjust the product structure. Product homogeneity is a major factor that prevents many nitric acid manufacturers from withstanding market risks at present. At present, the market prices of products such as pure methanol, *ao acid an, and synthetic ammonia are relatively high, with profits far exceeding those from concentrated nitric acid. Nitric acid manufacturers should adjust their product production structures according to their own conditions, shifting to the production of products with higher added value and greater profits, while reducing the production and sales of concentrated nitric acid in order to minimize risks. 　　4. Reduce blind investment: At present, the nitric acid industry lacks mechanisms for macro-control; projects worth tens of millions or even hundreds of millions of yuan are launched blindly, resulting in saturated market resources and declining profits. If a project fails to generate returns, it represents a waste for the enterprise as well as a waste of **resources; under such circumstances, industry self-discipline becomes particularly important. New projects involving concentrated nitric acid should be carried out sparingly or at all, especially those with a capacity of less than 50,000 tons per year, which should not be launched at all. 　　5. Combine competition with cooperation. The sharp decline in the nitric acid market is the result of vicious price-cutting among companies; therefore, in addition to competing with one another, firms should also foster appropriate cooperation, communicate their marketing strategies in a timely manner, and avoid engaging in fierce price wars. 　　6. Upstream and downstream parties must work together to maintain the continuity of the value chain. At present, there is an uneven distribution of profits among the industries involved in the production of concentrated nitric acid, leading to a wealth gap, and the value chain is at risk of being disrupted at any time. As an important link in the entire value chain, if the concentrated nitric acid industry collapses due to prolonged losses, it will have a significant impact on the interests of industries both upstream and downstream. Therefore, every enterprise in the industrial chain has the responsibility to maintain a balanced profit structure within it, in order to foster a healthy and sustainable cycle within the industrial chain. 　　7. Enhance the overall competitiveness of enterprises: Strengthen various management practices and technical upgrades within nitric acid production companies, reduce losses in transportation, lower manufacturing costs, and boost the companies’ market competitiveness from the source, thereby improving their ability to withstand risks. 　　8. Boost export efforts. The main bottleneck in the export of concentrated nitric acid at present is transportation. For a long time, there has been a shortage of bulk carriers for ocean transportation in the country, and the tank trucks used for domestic transport fail to meet the requirements of ocean voyages; as a result, the large-scale export of concentrated nitric acid products has been hindered. As long as the issue of bulk carriers is resolved, exporting concentrated nitric acid will not be a problem; once production reaches a certain scale, it will **help alleviate the shortage of domestic resources**.