Analysis on Coal Supply of UREA lndustry in China

By CnAgri2012-07-31 11:12:52 Print

China’s annual coal production was 3.24 billion tons in 2010, and is expected to increase at 6-8% growth rate within the next 5-10 years. Calculated based on China’s production scale of 40 million tons of coal-based urea in 2010, China’s urea production needs to consume about 55-60 million tons of coal. Taking into account the urea production growth has slowed down considerably, the annual average increase is expected to be no more than 3% in the next five years, and over the years, the government takes it as a regulatory focus to ensure coal supply to fertilizer enterprises. However, due to the restriction of the following factors, the future supply situation of urea-purposed coal is still more pessimistic:

1. Although coal production increases year after year, coal supply continues to be tight, making China became a net coal importer for the first time in 2009. The coal demand in electricity, steel and chemical industries maintains rapid growth trend, particularly since 2008, the country makes great efforts to ensure the supply of coal for power generation purpose, thus forming a squeeze to coal consumption in the urea industry. 

2. Coal prices have been fully market-oriented, moreover, the country shuts down the small- and medium-sized coal mines in order to protect coal resources, vigorously implements the coal resource paid use system and enhances the resource tax, resulting in continue rise of coal prices. The coal supply can not be fully guaranteed to the urea enterprises which do not own the coal resources.

3. The protectionism implemented by local governments and coal giants exacerbated the tight coal supply. In season of tight coal supply, the major producing provinces generally give priority to supplying the coal resources to the local enterprises so as to ensure the consumption of local enterprises; the coal giants represented by Shanxi Jincheng Coal Industry Group gives priority to implement the supply contracts signed with its urea subsidiaries, while its execution rate of other contracts signed with urea enterprises shall be as low as 10-30%. 

4. The transportation capacity strain becomes an important factor restricting coal supply. Railway is the main transport mode of coal consumed by Chinese urea enterprises, while the railway transportation capacity will be low within the next 10 years.