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Policy and Cost Double Impact on Chemical Industry
The State Council's executive meeting on January 9 focused on stabilizing prices, issuing directives to prevent near-term adjustments in the prices of refined oil, natural gas, and electricity. It also emphasized maintaining stable pricing for essential fertilizers such as urea and phosphate fertilizers. While cost increases necessitate some adjustments, these must be reported to the government’s price regulatory authority for approval. Additionally, local governments were instructed to conduct special inspections on fertilizer and agricultural material prices before the Spring Festival, ensuring market stability and regulating price behaviors.
This policy is closely tied to the recent surge in chemical product prices, which has been largely driven by rising crude oil costs. International crude oil prices have consistently exceeded $100 per barrel, with ongoing geopolitical tensions contributing to further price hikes. These increases have had a ripple effect across downstream industries, including the chemical sector, where production costs are climbing rapidly.
In response to these pressures, China’s refined oil prices have risen multiple times. For example, on November 1, 2007, domestic refined oil prices increased by 500 yuan per ton. Natural gas prices for industrial users saw a significant jump, rising from 0.93 yuan per cubic meter to 1.33 yuan, a 43% increase. Urea ex-factory prices surged from 1,600 yuan/ton at the start of November to 1,900 yuan/ton, with an average weekly increase of 100 yuan. Diammonium phosphate (DAP) rose from 2,700 to 3,200 yuan/ton, while monoammonium phosphate climbed to 3,100 yuan/ton. Compound fertilizer prices also increased sharply, reaching 2,550 yuan/ton from 1,800 yuan/ton over two years.
In the pesticide sector, glyphosate prices soared from under 30,000 yuan/ton to over 50,000 yuan/ton, pushing up its raw material, glycine, from 14,000 to 20,000 yuan/ton. This highlights the broader impact of energy price fluctuations on the chemical industry.
Energy products like refined oil, natural gas, and electricity play a critical role in economic stability. Despite rising upstream costs, their prices are kept controlled to support broader economic goals. This is especially beneficial for energy-intensive industries like calcium carbide and soda ash, where stable electricity prices offer much-needed relief.
Fertilizers, being key agricultural inputs, are under strict price control. Their prices are influenced by both raw material costs and energy prices, leading to high cost pressures over the past two years. As regulated products, fertilizer industry profits have remained low. Currently, urea ex-factory prices stand at around 1,500 yuan/ton, but with rising energy costs, the industry has requested a price adjustment to 1,600 yuan/ton.
In summary, despite the persistent upward trend in international crude oil prices—driven by increasing global demand—the Chinese government continues to manage key chemical and energy prices to maintain economic stability. While long-term cost pressures will likely persist, short-term price controls provide some relief to industries. For sustainable growth, the oil and chemical sectors must focus on energy efficiency, scale optimization, and structural adjustments to thrive in challenging market conditions.