Since 30% of urea companies use natural gas to make urea, many urea companies are concerned about whether the country will continue to implement gas price concessions for fertilizer companies and whether the supply of natural gas is adequate, after learning about the pilot program for natural gas price reform.

Urea producer Chitianhua (600227.SH) A senior executive pointed out that the New Deal of the National Development and Reform Commission may be aimed at urban gas users. Natural gas prices for industry and urea should also be retained, otherwise urea manufacturing companies are hard to bear. But what is certain is that urea will rise and it will obviously have an impact on the cost of the company.

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The proportion of natural gas in the cost of the urea company depends on the natural gas pricing.

The aforementioned Chitianhua executives confirmed that the natural gas price they received was less than RMB 2/cubic meter. “Most companies’ natural gas price costs will account for 70% to 80% of the company's production costs. Therefore, urea companies have natural gas prices. It is the most sensitive."

If the use of gas is 100 million cubic meters per year, the natural gas price will rise by 20%, and the company’s overall manufacturing cost will increase by 14% to 16%.

A management of Liaotong Chemical believes that “if the price of natural gas increases, fertilizer companies can increase the price of chemical fertilizers themselves, but for many companies, the supply of gas to fertilizer companies is seriously insufficient.”

For Chitianhua, the company's designed gas usage is 500 million cubic meters, only 300 million cubic meters. Due to the insufficiency of gas supply, the company has begun to use coal instead of natural gas as fuel, which can save 10% of natural gas for direct production of urea. However, this does not completely solve the problem. “The main gas supplier we are now is PetroChina Southwest Oil and Gas Field, and the company is also waiting for the arrival of CNPC West-East Gas Pipeline (through the re-distribution of Hubei to Sichuan-Chongqing area).”

In response to the two major problems of inadequate gas supply and price increase, Chitianhua is now constructing two sets of coal chemical plants, one of which will be trial-produced next year, including the manufacture of ammonia and dimethyl ether. Liao Tong Chemical's approach is that through the production of oil refining and other chemical products, so that the proportion of urea profits in the company's total profit has decreased. "The profit of urea is estimated to be reduced from one-third of the original total profit to 20%."

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