This time, chemical companies feel like they've been pushed into a dead end. Natural gas prices just went up, and now coal prices are rising again! At the recently held National Key Coal Production, Transportation, and Demand Coordination Meeting, the National Development and Reform Commission decided to cancel the uncontracted coal price increases from late 2004, while maintaining overall stability in electricity coal prices. This move introduced price caps, which actually raised the contract prices by at least 30 to 40 yuan per ton. For chemical companies, who had no say in coal supply and marketing, this is a major blow.
In recent years, downstream chemical companies have been constantly pressured by rising raw material costs. The coal-fired linkage policy introduced in the second half of 2004 allowed power companies to raise electricity prices. A one-cent increase in electricity prices could cost fertilizer companies millions or even tens of millions of yuan. This time, the coal price hike is essentially siphoning off profits from chemical companies. Currently, except for natural gas, most domestic fertilizer companies rely on coal as their main production source. The sudden jump in coal prices has shocked them even more.
Wang Yi, General Manager of Shijiazhuang Jinshan Petrochemical Fertilizer Co., Ltd., expressed anxiety about this year’s coal linkage: “The factory washing coal will go up by 40 yuan per ton, which will add 36 yuan to the cost of producing one ton of urea. That’s equivalent to increasing the cost of ammonia by 60 yuan per ton.†Urea export restrictions have led to a surge in domestic production, causing urea prices to fall. Even without increased capacity, fertilizer prices won’t rise. Companies are now relying on minimal margins. The only option is to reduce costs through efficiency improvements. However, the current ammonia-to-coal ratio is already at 1.5 tons, and further improvement is difficult. According to reports, the company signed a 420,000-ton coal contract, meaning a single price increase adds 16 million yuan to their costs.
It is understood that chemical companies nationwide use between 200 million and 250 million tons of anthracite annually, with "washing block" being the best quality coal for chemical use. One key feature of this meeting was the sharp rise in demand from chemical companies, while coal supply declined, leaving many coal contracts unfulfilled.
Yan Yinghua, General Manager of Hebei Xuyang Coking Group, kept in constant contact with attendees of the national coal meeting, using his phone to track real-time updates on coal price changes. He understands that coking coal prices will also rise, but since their products mainly serve steel companies, they must follow price adjustments. Whether steel companies will accept these increases remains uncertain. “Can we not worry?†Yan asked, looking helpless.
Sui Hongxuan, First Deputy General Manager of Shandong Lubei Enterprise Group, said that their 2×300,000-kilowatt cogeneration project, one of China’s largest ecological power generation projects, requires large amounts of coal. Due to the government's temporary cancellation of coal price hikes, thermal coal prices rose by over 20 yuan per ton, increasing enterprise costs and delaying the project. They only signed a 900,000-ton contract after the meeting ended, far below the 1.5 million tons needed annually. Even so, the contract price hasn’t been finalized yet, and suppliers say they will follow suit later. “We have no room to negotiate!†Sui said helplessly.
At this national coal meeting, some chemical fertilizer companies even spent tens of millions of yuan to purchase 'index coal.' Why? Because the chemical fertilizer market has been booming since last year, with urea and ammonium nitrate prices climbing steadily. This led large companies to increase production, driving up coal consumption. As a result, small chemical fertilizer companies now face the reality of low or no coal supply.
While major coal producers like Datang, Huaneng, and Huadian managed to secure favorable results due to their size, chemical companies—always in a passive position in the coal game—remain desperate for solutions. Many chemical fertilizer companies have pointed out that the chemical industry is also a major coal user. Why isn’t there a voice for them in the coal price adjustment process? If it's an industrial chain, negotiations should be multilateral, considering all interests to prevent the entire market from being pulled upward.
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