On December 26, the 2006 national coal ordering meeting was held in Jinan. This year's event is expected to be more straightforward compared to previous years, as the long-standing price discrepancies between coal and electricity have been addressed through national policy interventions, aiming to foster a fairer and more harmonious environment. However, the fertilizer industry may face even greater challenges following this meeting.
The relationship between coal and electricity has always been closely intertwined yet fraught with tension. Coal companies have often criticized the high profits of power generation companies. In June, the State Council issued "Several Opinions on Promoting the Healthy Development of the Coal Industry," emphasizing the need to improve the coal price linkage mechanism and ensure a more balanced distribution of benefits between coal producers and power companies. Later, in October, the National Development and Reform Commission and the Ministry of Construction jointly released "Guiding Opinions on Establishing a Coal-fired Heat Linkage Mechanism." According to these guidelines, future electricity and heating prices will be directly tied to coal prices, potentially allowing for higher electricity rates. This development offers coal companies an opportunity to increase prices, at least ensuring that coal prices remain stable or even rise in the coming year.
The fertilizer industry is also heavily dependent on coal prices. China is the world's largest producer and consumer of fertilizers, with nitrogen fertilizer production accounting for about a quarter of global output in 2004. Over 50 large and medium-sized fertilizer plants operate nationwide, with more than 30 of them using coal as their primary raw material. Additionally, around 1,000 smaller fertilizer plants rely almost entirely on coal. With rising coal prices and uncertain supply, many fertilizer companies are struggling, operating at low profit margins or even facing losses. The average profit rate in the sector is below 5%, and many firms are still operating at a deficit.
Complaints from the fertilizer industry against the coal sector have been ongoing, but they have not led to meaningful change. The coal industry has resisted exclusive arrangements for power companies, leading to situations where non-signatory contracts were signed at unfavorable prices. Eventually, government intervention led to the release of the State Council's "Opinions," which aimed to address these imbalances.
It is reasonable to say that the coal industry is also reliant on the fertilizer sector, though the relationship is less intense than that between coal and electricity. For coal companies, both electricity and fertilizer are like relatives—some rich, some poor. They tend to favor the wealthy while avoiding the less fortunate. For years, the fertilizer industry has endured the cold shoulder from coal companies, who raise prices whenever possible and cut off supplies at will, seemingly forgetting their poorer relatives. While coal-fired electricity can now be regulated under state-supervised contracts, the fertilizer industry could benefit from similar national coordination, ensuring that its "poor relatives" no longer suffer from constant hunger.
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