Forthcoming Oversupply for Synthetic Ammonia   

By Zhang Zhantong

Stable output increase

The total capacity of synthetic ammonia in China is 52.0 million t/a today. There are around 540 producers mainly located in Shandong, Shanxi, Hebei, Henan, Jiangsu and Sichuan provinces. The cumulative capacity in Shandong province ranks the highest, accounting for 14.6% of the national total.
   The output of synthetic ammonia in China has increased annually in recent years. It reached 49.379 million tons in 2006, an increase of 7.4% over the previous year.
   Urea is the major downstream product of synthetic ammonia and consumes 60% of synthetic ammonia. Ammonium bicarbonate and other chemical products come next.
   The balance between the supply and demand of synthetic ammonia in China is relatively stable today. As the economic performance of the chemical fertilizer manufacturing sector has been improving in recent years, many local enterprises followed to construct new synthetic units or expand their production capacity. With the completion of these new construction and expansion projects, China's capacity of synthetic ammonia will increase by more than 2.0 million t/a in 2007. As new synthetic ammonia units basically have been matched with downstream urea manufacturing units, the supply/demand balance of synthetic ammonia will make no great change. Even if there would be an oversupply, it would be caused by the oversupply of urea.

Coal - major raw material

The production of synthetic ammonia in other countries mainly uses natural gas as raw material. Major raw materials for the synthetic ammonia production in China include coal, natural gas and heavy fuel oil. The proportion held by raw materials is around 66% for raw coal, around 22% for natural gas and around 12% for heavy fuel oil. As raw materials occupy a very important role in the cost, the selection of low-price raw materials is of crucial importance to the enhancement of product competitiveness at the side of producers.
   When heavy fuel oil is used in the synthetic ammonia production, the cost of raw material is as high as RMB2 240 per ton. There is no profit at all because the ex-work price of liquid ammonia is commonly RMB2 200 per ton. With the constant rise of the crude oil price, the synthetic ammonia process of using heavy fuel oil as feedstock will have less and less application.
   The use of natural gas in the synthetic ammonia production can have some profit today. Nevertheless, the cost of raw material is still quite high compared with using raw coal (including power and steam). Besides, the blue paper of "2007 China Energy Development Report" points out that according to the overall program for the natural gas development there will be 270 cities using natural gas in 2010, the demand for natural gas will reach 100 billion m3 while the output will be around 80 billion m3 and the deficit will reach more than 20 billion m3. The demand for natural gas will reach more than 200 billion m3 in 2020, the output will only be 100 billion m3 and the remaining 50% of the demand will have to depend on import. In the long term, therefore, the use of natural gas in the synthetic ammonia production will also be faced with great difficulties. Central government issued a new policy in September to control the usage of natural gas, which does not encourage the chemical fertilizer sector to add new production units using natural gas as feedstock.

Cost by Raw Materials
Raw material    Consumption norm    Price of raw material    Cost per ton ammonia
Raw coal    1 370 kg/t    RMB500/t    RMB685
Natural gas    850 m3/t    RMB2/m3     RMB1 700
Heavy oil    800 kg/t    RMB2 800/t    RMB2 240
Source: CNCIC

   
Price climbing

China totally manufactured 53.048 million tons of fertilizers in 2006, up 14.2%. The output growth of nitrogenous fertilizers was 13.3%, being higher than the ammonia output growth - 7.4%. The growth of demand from downstream plus the constant price rise of raw coal and natural gas will support a firm price of liquid ammonia.

Future projection  

    (1) Major downstream products of synthetic ammonia are chemical fertilizers that are the basis for the agriculture. The Chinese government will remain to give firm support to agriculture in a short term. Therefore, the synthetic ammonia manufacturing sector will develop stably in the next few years.
    (2) The "Medium and Long-Term Program for Energy Conservation" issued by the National Development and Reform Commission regards the synthetic ammonia production as a major sector need to carry out energy conservation and consumption reduction. According to the program, China will accelerate the technological renovation to the synthetic ammonia production in the next 15 years, aim to reduce the energy consumption per ton of ammonia from 1 370 kg coal today to 1 000 kg coal.
    (3) The capacity growth in the coal sector is slowed down and the supply and the demand tend to be well balanced. The increase of the coal cost has, however, pushed a price rise of coal.