Why Did the Chinese Concentrated Nitric Acid Market Move Down in Q1, 2018

Introduction: In Q1, 2018, the Chinese concentrated nitric acid market continued the declines. Some producers’ ex-works prices were lower than the cost. Before the Spring Festival, nitric acid producers cut prices to ease the payback pressure. After the Spring Festival, producers had to cut prices on the high inventories. The coming market is also murky.

With the supply-side structural reform, some small and medium-sized downstream users shut down their units. Moreover, influenced by some national meetings, the downstream operating rate was low. The supply exceeded the demand. In Q1, 2018, the Chinese concentrated Nitric Acid market prices declined continuously. The average price for 98% nitric acid was in the range of RMB 1,524-1,729/mt.   

Mild Declines (from Jan to mid-Feb): The demand for nitric acid entered the off-season before the Spring Festival holiday. Though many nitric acid units were shut, the weak demand still lower than the overall supply. Moreover, nitric acid producers faced payback pressure and they cut down prices. Prices for 98% nitric acid declined from RMB 1,721/mt to RMB 1,683/mt, down 2.21%.   

Great Declines (from mid-Feb to early Apr): During the Spring Festival holiday, the nitric acid market was stagnant restricted by the logistics. After the holiday, the demand for nitric acid recovered slowly and the supply increased. Moreover, prices of liquid Ammonia declined obviously, which weighed on the nitric acid market. In March, units shut previously restarted and the supply increased further. Nitric acid prices declined RMB 50-210/mt. The average price was RMB 1,524/mt, down 9.45%.

In Q1, 2018, the average gross profit was RMB 277/mt, increased greatly year on year. Producers with profits increased the operating rate. The gross profits shrank when the prices moved down. In April, some producers started to operate in a loss. Taking the Shandong market as the example, synthesis ammonia prices increased first and then moved down in early 2018, but the prices slumped after the Spring Festival holiday. Nitric acid prices went down. The profits were in the range of RMB 70-300/mt. With the operating rate increasing and price declines, some producers saw losses in the range of RMB 50-100/mt in mid-April. 

On the whole, the Chinese nitric acid market was weak in Q1, 2018. Prices moved down by RMB 100-300/mt. In April, the prices continued the downtrend and some producers started to sell in losses. In Q2, 2018, the prices may continue to move at low levels. Players should focus on the synthesis ammonia prices and nitric acid units’ running status.