CRU: Winter in China Tightens Feedstock Supply Idling Additional Urea Plants

(MENAFNEditorial) LONDON, January 10, 2018 /PRNewswire/ --

Stricter environmental controls in China have led to acute shortages of natural gas and over 9.4 million tons of gas based urea production has been suspended. Together with rising coal prices and costs, the urea market in China will be tighter in the near term. Global implications are centered on additional supply from other marginal exporters as China supplies less in the export market.

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Coal-to-Gas switching leads to a tighter supply of natural gas
Stricter environmental controls have been implemented over the autumn-winter period 2017/2018 in China. Three million enterprises in Beijing-Tianjin-Hebei and surrounding regions (alleged '2+26 cities') were required to switch from coal to natural gas or electricity by the end of October 2017, to reduce coal consumption in winter.

Consequently, the demand for natural gas increased dramatically when north China came into the winter heating period from mid-November 2017. The growth rate for natural gas consumption exceeded expectations.

According to the NDRC, Chinese natural gas production increased by 11.2% to 121.2 billion cubic meters while consumption increased by 18.7% to 186.5 billion cubic meters in Jan-Oct 2017, which led to a surge in imports of 27.5% year on year to 72.2 million cubic meters.

The growth rates of domestic natural gas production and pipeline natural gas expansion were only 8.3% and 5.2% respectively during the first three quarters this year. As a result, the demand gap must be satisfied by the more expensive LNG.

Driven by the significant increase in demand, Chinese LNG prices doubled in one month from early November through to early December. The LNG price provided by local producers located in Inner Mongolia and Shanxi reached $1,200/t in early December from about $600/t in early November, while the sales price of imported LNG increased to $720/t from $600/t in south China during the same period.

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