Since the second half of last year, the domestic ammonia market has experienced significant volatility due to major production accidents at two large ammonia producers. This has led to frequent fluctuations in the prices of liquid ammonia, urea, and nitric acid. The shortage of liquid ammonia resources triggered a fierce competition between the urea and nitric acid industries for available supplies.
The situation worsened in the second half of 2007 when a major explosion occurred at Shandong Deqilong Chemical Industry Group’s ammonia alcohol plant. This facility was one of China's largest ammonia plants with a capacity of 750,000 tons per year. The incident caused a sharp drop in synthetic ammonia output, which fell to 7.43 million tons—down by 198,000 tons compared to the previous year. As a result, national synthetic ammonia output reached 51.5887 million tons in 2007, an increase of just 5.4% from the previous year, far below the average growth rate of around 13% seen in previous years.
By the fourth quarter of 2007, the domestic liquid ammonia market had become increasingly tight, with prices rising steadily. At the end of 2007, as coal and urea prices continued to climb, the supply-demand imbalance in the liquid ammonia market became more severe, leading to a sharp price surge. Ex-factory prices across the country reached 2,700–2,800 yuan per ton.
After the Spring Festival this year, the gradual recovery of power and transportation helped downstream urea and nitric acid enterprises resume operations or increase production, further boosting demand for liquid ammonia. However, on February 13, Sinopec Nanjing Chemical Industry Group suffered another explosion at its 300,000-ton synthetic ammonia plant, causing an overnight reduction in domestic liquid ammonia supply. The already tight situation turned critical, and prices surged rapidly, sometimes changing daily. Within just two weeks, the mainstream price of liquid ammonia climbed to 3,200 yuan per ton.
In mid-March, the restart of the Nanjing Chemical Plant eased the resource shortage slightly. However, since the system was still ramping up, the company’s ammonia output remained low. As a result, East China’s liquid ammonia prices remained high at 3,150–3,200 yuan, while other regions saw prices fall to 3,050–3,100 yuan.
By the end of March, prices rose again, reaching as high as 3,250–3,300 yuan per ton in most areas. In Zhejiang Province, where transportation issues persisted, prices even hit 3,800 yuan, a shocking figure.
Liquid ammonia is a key raw material for both urea and nitric acid production. Approximately 60–70% of China’s liquid ammonia is used in fertilizer production, such as urea and ammonium bicarbonate, while 30–40% is used for nitric acid and ammonium nitrate.
As the main cost component in urea production, ammonia plays a central role in determining urea prices. Most Chinese synthetic ammonia is produced using natural gas or coal, and urea companies that use natural gas often benefit from preferential gas pricing. Coal-based ammonia producers, however, face more market-oriented costs, so changes in coal prices directly reflect ammonia market conditions. A rise in coal prices typically leads to higher ammonia prices, which in turn pushes up urea prices.
Nitric acid production differs from urea in that it can use either natural gas-based ammonia or coal-based ammonia. Therefore, coal prices serve as a barometer for nitric acid prices, though the impact is usually delayed by about five to six months compared to urea.
Due to differences in production processes, enterprise structures, and management styles, the cost calculation methods for nitric acid vary widely among companies. According to Sun Lihui, general manager of Shandong Huayang Deere Chemical Co., Ltd., the dual-pressure process is the most cost-effective, with ammonia consumption at 283 kg per ton. Other methods, such as high-pressure or atmospheric pressure, have higher costs. With current ammonia prices, only those using the dual-pressure method can maintain profitability, while others are operating below cost.
Although the government has issued multiple reminders to control fertilizer prices, urea companies still face strong demand due to their reliance on state subsidies and the need to meet annual production targets, especially after recent disasters. With the farming season approaching, few companies would risk missing out on the lucrative agricultural fertilizer market.
On the nitric acid side, rising ammonia and steam costs make it difficult for many producers to remain profitable, even at current ammonia prices of 3,050–3,100 yuan. A large number of nitric acid plants are still operating at reduced levels or have shut down, and the pressure on prices remains high.
Internally, some urea companies also operate nitric acid plants. When ammonia is scarce, these companies must decide whether to prioritize urea or nitric acid production. Profit margins become the key factor in such decisions, as companies aim to maximize returns.
Externally, the shortage of ammonia caused by recent accidents has made the profits of urea and nitric acid industries the main determinant in how limited ammonia resources are allocated.
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