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Policy and Cost Double Impact on Chemical Industry
On January 9, the State Council held an executive meeting to address rising prices and announced a plan to keep the prices of refined oil, natural gas, and electricity stable in the near future. It also emphasized that fertilizer prices—such as those for urea and phosphate fertilizers—should remain steady. While cost increases may necessitate adjustments, these changes must be reported to and approved by the government’s price regulatory authorities.
In addition, the meeting urged local governments to conduct special inspections on fertilizer and agricultural material prices before the Spring Festival, aiming to regulate pricing behavior and ensure adequate market supply. This move reflects the government's concern over the recent widespread price hikes in chemical products, which are closely tied to the surge in international crude oil prices. At the start of the year, crude oil futures broke above $100 per barrel, and with ongoing global uncertainties, prices have continued to climb.
The rise in crude oil costs has had a ripple effect on downstream chemical products. For example, China’s refined oil prices increased several times due to rising production costs. On November 1, 2007, domestic refined oil prices rose by 500 yuan per ton. Natural gas prices also saw a significant increase, with upstream industrial gas prices jumping from 0.93 yuan to 1.33 yuan per cubic meter—a 43% rise. Meanwhile, urea ex-factory prices surged from 1,600 to 1,900 yuan per ton, climbing about 100 yuan weekly. Diammonium phosphate (DAP) prices rose from 2,700 to 3,200 yuan, while monoammonium phosphate reached 3,100 yuan, up 500 yuan from the beginning of the month.
Pesticide prices also experienced sharp increases, with glyphosate reaching over 50,000 yuan per ton—up from under 30,000 at the start of the year. Its raw material, glycine, also climbed from 14,000 to 20,000 yuan per ton. These trends highlight the pressure on the chemical industry, especially given the high energy costs.
Energy products like refined oil, natural gas, and electricity play a crucial role in stabilizing overall prices. Despite rising upstream costs, their prices are tightly controlled, reflecting their importance to national economic stability. The decision not to raise natural gas or electricity prices soon is a positive signal for the chemical sector, particularly for industries such as calcium carbide and soda ash.
Fertilizers, as key agricultural inputs, are subject to strict price controls. Their prices are influenced by both raw material and energy costs, leading to high cost pressures. Although they are essential for agriculture, profit margins in the fertilizer industry have remained low. Currently, urea ex-factory prices stand at around 1,500 yuan per ton, but with energy prices continuing to rise, the industry is pushing for a higher quota price of 1,600 yuan per ton.
In summary, the ongoing rise in international crude oil prices shows no signs of slowing, driven by growing global demand. This will likely continue to push up energy costs, creating further pressure on related industries. However, under government control, the growth of critical products like fertilizers and pesticides is limited. To achieve long-term sustainability and better profitability, the oil and chemical sectors must focus on energy efficiency, scale optimization, and product structure adjustments. Only through these efforts can they thrive in a challenging market environment.