Since the second half of last year, a series of major production accidents at two large domestic ammonia producers have caused significant fluctuations in liquid ammonia prices, as well as in urea and nitric acid. The scarcity of liquid ammonia has triggered a fierce competition between the urea and nitric acid industries for this essential raw material.
The situation worsened in the second half of 2007 when an explosion occurred at Shandong Deqilong Chemical Industry Group’s ammonia alcohol plant, which housed one of China's largest ammonia facilities with a capacity of 750,000 tons per year. This accident led to a sharp decline in synthetic ammonia output, with the production base dropping to 7.43 million tons—down by 198,000 tons from the previous year. As a result, national synthetic ammonia output for 2007 rose by only 5.4%, far below the usual growth rate of around 13% in prior years. Consequently, the domestic liquid ammonia market became increasingly tight, and prices began to rise steadily.
By the end of 2007, rising coal and urea prices further intensified the supply-demand imbalance in the liquid ammonia market, pushing ex-factory prices to 2,700–2,800 yuan per ton across most regions.
After the Spring Festival this year, as the impact of the snowstorm eased and power and transportation systems recovered, downstream urea and nitric acid companies gradually resumed operations or increased production, leading to higher demand for liquid ammonia. However, on February 13, another major incident occurred when Sinopec Nanjing Chemical Industry Group’s 300,000-ton synthetic ammonia plant exploded, drastically reducing domestic ammonia supplies. The already tight market turned even more critical, with prices surging rapidly—nearly doubling within two weeks, reaching 3,200 yuan per ton.
By mid-March, the Nanjing Chemical Plant resumed operations, easing the supply pressure slightly. However, the initial production was limited, so prices in East China remained high at 3,150–3,200 yuan, while other regions saw prices drop to 3,050–3,100 yuan. By the end of March, prices climbed again, with the mainstream market price hitting 3,250–3,300 yuan, and in areas like Zhejiang, local transport issues pushed prices as high as 3,800 yuan—a shocking increase.
Liquid ammonia plays a crucial role in both urea and nitric acid production. Approximately 60%–70% of China’s liquid ammonia is used for fertilizers such as urea and ammonium bicarbonate, while 30%–40% goes into nitric acid and ammonium nitrate. As a key raw material for urea, ammonia accounts for a large portion of production costs. Most synthetic ammonia is derived from natural gas, giving urea producers access to preferential gas prices, whereas coal-based ammonia producers face more volatile cost structures. Therefore, changes in coal prices directly reflect ammonia supply and demand dynamics, and rising coal prices inevitably lead to higher ammonia and urea prices.
In contrast, nitric acid production involves different processes. Some plants use natural gas-derived ammonia, while others produce their own ammonia before converting it into nitric acid. As a result, coal prices act as a barometer for nitric acid prices, though the response is typically delayed by about five to six months compared to urea.
Due to differences in production methods and management styles, nitric acid cost calculations vary widely among Chinese enterprises. According to Sun Lihui, general manager of Shandong Huayang Deere Chemical Co., Ltd., the dual-pressure process offers the lowest cost, with ammonia consumption at 283 kg per ton, while high-pressure and atmospheric-pressure methods are more expensive. With current ammonia prices, only the dual-pressure process remains profitable, while other methods operate below cost.
Although government regulations and price controls have aimed to stabilize urea prices, many regional urea companies still benefit from state or local subsidies, especially after production halts due to disasters. With the farming season approaching, companies are eager to meet annual targets, maintaining strong demand for liquid ammonia despite high prices.
On the nitric acid side, rising ammonia and steam costs make profitability difficult even at current levels. Many nitric acid plants remain idle or operate at reduced capacity, and with coal shortages intensifying, the competition for liquid ammonia between urea and nitric acid plants is expected to continue.
Within companies that produce both urea and nitric acid, decisions on which product to prioritize during ammonia shortages often depend on profit margins. Companies will naturally choose the option that generates the highest return.
Externally, the recent accidents at major ammonia plants have created a severe supply shortage, making profit potential the main factor in determining how limited liquid ammonia resources are allocated across the market.
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