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 coal price hikes that weren't included in long-term contracts from late 2004, while keeping electricity coal prices stable. This move imposed price caps and introduced more flexible pricing mechanisms, which led to an increase of at least 30–40 yuan per ton in contract coal prices. For chemical companies, who have little influence over coal supply and distribution, this is a major blow.
In recent years, downstream chemical companies have been constantly pressured by rising raw material costs. The introduction of the coal-fired linkage policy in the second half of 2004 allowed power companies to raise electricity prices. A mere one-cent increase in electricity can cost most fertilizer companies millions or even tens of millions of yuan. This time, the coal price hike is essentially a public theft of their profits. Currently, except for natural gas, domestic fertilizer companies mainly rely on coal as their production source. This sudden jump in coal prices has left them shocked.
Wang Yi, General Manager of Shijiazhuang Jinshan Petrochemical Fertilizer Co., Ltd., expressed his anxiety: “Coal washing costs will rise by 40 yuan per ton, adding 36 yuan per ton to urea production costs—equivalent to increasing ammonia costs by 60 yuan per ton.†With urea exports restricted, domestic production capacity has surged, leading to a drop in urea prices. Even without increased production, fertilizer prices won’t rise. Companies are now relying on minimal margins. The only option is to cut costs through efficiency improvements. However, current ammonia usage has already dropped to 1.5 tons per ton, and this standard is hard to improve further. According to reports, the company signed a 420,000-ton coal contract, resulting in an additional 16 million yuan in costs due to the price hike.
It is estimated that chemical companies in the country use between 200 million and 250 million tons of anthracite annually. "Washing block" coal is the best quality for chemical use. One key feature of this meeting was the sharp increase in demand from chemical companies, while coal supply declined. Many coal suppliers couldn’t fulfill their commitments.
Yan Yinghua, General Manager of Hebei Xuyang Coking Group, kept in constant contact with attendees at the national coal meeting, using his phone to get real-time updates on coal price changes. He understood that coking coal prices would also rise. As a coking coal supplier, their products mainly go to steel companies. While they must follow price adjustments, it’s unclear if steel companies will accept them. “Can we not worry?†Yan said with a helpless look.
Sui Hongxuan, the first deputy general manager of Shandong Lubei Enterprise Group, who attended the coal meeting, mentioned that their 2×300,000-kilowatt cogeneration project, costing 2.75 billion yuan, is the largest ecological power generation project in China. Despite urgent need for coal, the government's last-minute cancellation of price controls caused thermal coal prices to rise 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 on January 10, far below the 1.5 million tons needed annually. Even so, the contract price hasn’t been finalized yet, and suppliers say they’ll follow suit later. “We have no room to negotiate!†Sui said helplessly.
At this national coal meeting, some chemical fertilizer companies spent tens of millions of yuan to purchase 'index coal.' Why? Because since last year, the chemical fertilizer market has been booming, with prices of urea and ammonium nitrate continuously rising. This led large companies to increase production, boosting coal consumption. As a result, small chemical fertilizer companies are now facing a reality of limited or no coal supply.
The national coal coordination meeting has concluded, and major power companies like Datang, Huaneng, and Huadian managed to secure favorable results due to their size. But what about chemical companies, always in a weak position in the coal game? Who will step in to solve their problems? Many chemical fertilizer companies report that the chemical industry is also a major coal user. Why are they excluded from the decision-making process during coal price increases? If it's an industrial chain, negotiations should be multilateral, considering all interests to prevent the whole market from being pulled upward.
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