(Bloomberg) -- Farmers are the latest victims of China’s desire for cleaner air.
Officials have forced natural gas-powered fertilizer plants to shut in areas like Sichuan and Yunnan to conserve the fuel for home-heating in the north, where demand is outpacing supply. That’s boosting prices of nitrogen-rich urea, which is spread on fields to boost soil productivity, after output was already cut by pollution restrictions on coal-fired facilities.
The fertilizer cutbacks are yet another unintended consequence of China’s efforts to achieve blue skies by boosting natural gas consumption and limiting coal burning. The price of urea in Shandong province rose to the highest level in four years, and Chinese exports will likely drop to 4.3 million metric tons this year from 8.9 million in 2016, said Tang Feifei, an analyst with Zhongyu Information Technology Co.
“As China further tightens gas supplies to industrial users, we expect the utilization rates for gas-based urea and methanol producers to slip further,” China International Capital Corp. analyst Xuan Li said in a Dec. 13 research note. “Urea prices should rise higher amid shrinking supplies and low inventories.”
Urea production in the fourth quarter of the year may fall by 3 million tons compared with last year, Zhongyu Information’s Tang said. China produced 62 million tons last year, of which 28 percent was from gas-based urea plants.
Rising domestic prices will add to planting costs for Chinese corn farmers next year, Tang said. Production may remain affected until the heating season is over in April next year.
Shutdowns include Yuntianhua’s unit in Yunnan province in southwest China, which halted synthetic ammonia and urea production from Dec. 11 after gas suppliers halted deliveries to corporate users in the region to meet residential demand, according to an exchange filing.
PetroChina Co. stopped supplying gas to urea and chemical makers in Sichuan province to reallocate the fuel to residential users in northern China, Morgan Stanley analyst Andy Meng said in a Dec. 8 research note. BASF SE said Dec. 12 that it shut a petrochemical plant in Chongqing due to a gas shortage.
Global urea production increased in 2016 in spite of a 5 percent drop in China, according to the International Fertilizer Association. Worldwide supply is expected to increase again in 2017 amid capacity increases in Africa and North America. China was the largest exporter of the fertilizer in 2014, according to Potash Corp. of Saskatchewan Inc.
Urea production curbs in China are just one impact of natural gas shortages resulting from a 19 percent jump in demand after the government ordered homes and businesses to switch to the cleaner burning fuel from coal.
In the city of Wuhan, the local gas company is said to have stopped supplying gas to entertainment venues and asked people to stop cooking with the fuel during peak times of the day. In another town, gas-powered taxis and buses had to line up overnight after supplies were curbed.
“Gas-based urea plants account for about 30 percent of China’s total capacity, so lower output from gas-based urea plants is likely to introduce positive sentiment to urea prices, especially when the urea demand picks up in early 2018,” Morgan Stanley’s Meng said.
©2017 Bloomberg L.P.
With assistance from Niu Shuping, Dan Murtaugh