On December 26, the 2006 national coal ordering meeting took place in Jinan. This year’s event was expected to be more relaxed compared to previous years, as the long-standing price disputes between coal and power companies, which had often disrupted the stability of the sector, were now being addressed through national policy interventions. While this might have improved the overall atmosphere between coal and electricity sectors, the fertilizer industry could face even greater challenges in the wake of the meeting.
The relationship between coal and electricity has always been closely intertwined, yet it has also been marked by tension. Coal companies have long criticized the high profits made by power plants, especially when coal prices were low. In June, the State Council released "Several Opinions on Promoting the Healthy Development of the Coal Industry," calling for a better pricing mechanism that would fairly balance the interests of coal producers and power generators. Later, in October, the National Development and Reform Commission and the Ministry of Construction jointly issued "Guiding Opinions on Establishing a Coal-fired Heat Linkage Mechanism." According to these guidelines, electricity and heating prices will now be tied more directly to coal prices, allowing for potential increases in electricity tariffs. This development gives the coal industry a chance to raise prices, ensuring that coal prices do not fall significantly next year.
The fertilizer industry is also highly dependent on coal, both as a raw material and as an energy source. 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. There are over 50 large and medium-sized fertilizer plants, with more than 30 using coal as their primary feedstock. Additionally, around 1,000 smaller fertilizer plants rely almost entirely on coal. With rising coal prices and uncertain supply, many fertilizer companies are struggling. The average profit margin in the sector is below 5%, and many firms are operating at a loss.
Historically, the fertilizer industry has voiced complaints against the coal sector, but such grievances have rarely led to meaningful change. The coal industry has resisted exclusive arrangements with power companies, leading to situations where key coal contracts were signed without agreed-upon prices. This forced government intervention and eventually resulted in the State Council's "Opinions." It's fair to say that the coal industry cannot operate independently from the fertilizer sector, though the relationship is less intense than that between coal and electricity. For coal companies, electricity and fertilizers are like rich and poor relatives—choosing to align with the former while avoiding the latter. Over the years, the fertilizer industry has endured the coal sector's unpredictable behavior, including sudden price hikes and supply cuts, much like being ignored by distant relatives. Now, with coal-electricity agreements under state supervision, there is hope that the government can also create a similar arrangement for the fertilizer industry, ensuring that its "poor relatives" no longer go hungry.
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