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Eric Ng

A mainland urea producer said Beijing should raise the regulated prices for urea fertiliser, as surging raw material costs  had made some  producers of the nitrogen-based chemical unprofitable.
Beijing may  implement further  export tariff increases to  raise supply in the domestic market, said Liu Xingxu, the chairman of Henan-based and Singapore-listed China XLX Fertiliser.
The plight of mainland fertiliser makers is similar to that of other basic commodities producers suffering from government price controls aimed at reining in inflation.
However, the inability to raise selling prices amid rising  costs has  eroded margins  of producers and led to supply shortages.
Mr Liu said the average production cost per tonne  for mainland urea producers that use coal as feedstock had risen to over 1,600 yuan.  Coal  prices have  risen 30 per cent  this year.
While Beijing imposed a price cap on coal use by power plants last week, it has not done so on coal used by fertiliser makers.
About 77 per cent of mainland urea makers use coal,  while 21 per cent  use natural gas and 2 per cent use oil.
'Some producers' costs are  higher than the capped factory selling price for urea of 1,725 yuan a tonne,' Mr Liu said. 'With surging coal prices and strong domestic and international demand, it is necessary for the government to raise urea prices.'
Growth in urea output had slowed this year, he added, and if the price cap was not lifted soon, domestic supply  could fall as producers  turned to the overseas market.
A surge in the price of urea on the international market  to US$500 a tonne, from less than US$300 a year  earlier, prompted Beijing to raise the tax on exports to 135 per cent from 35 per cent in April to  discourage exports. The  drop in mainland urea exports  prompted overseas prices  to climb to over US$700 a tonne,  making exports even more appealing.
'If you work the international price backward [excluding export tax], the selling price for exporters is equivalent to 1,930 yuan (HK$2,196) a tonne, more lucrative than the domestic price of 1,725 yuan,'  said China XLX chief financial officer Yan Yunhua.
Despite  all this, Mr Liu said the company had  achieved a higher profit margin and net profit in  the first quarter.
The adoption of more advanced technology  meant the utilisation rate of its plants  was 6 per cent higher than the industry average, its plant's coal usage  was 10 per cent less and electricity consumption 20 per cent more efficient, he said.
These factors, together with the proximity of its plant to coal-rich Shanxi province and the self-generation of part of its own electricity requirements, meant  production costs  were 23 per cent lower than the industry average, he added.
Coal and electricity account for 74 per cent of China XLX's production costs.



China XLX Fertiliser urges lifting of price controls to stabilise supply