Concentrated nitric acid fading cause in the industry itself
The price increase of concentrated nitric acid in July was driven by several key factors. First, the traditional seasonal pattern typically sees a peak in demand during this time, making it a prime period for sales. Second, the capacity expansion that took place in 2006 had largely been completed by mid-2007, and no new production units were added in July. Third, the rising costs of basic raw materials—such as coal and pork—put upward pressure on production expenses. Lastly, increasing transportation costs further contributed to the overall cost hike.
Given these conditions, manufacturers who had struggled with losses for two years saw an opportunity to boost output and capitalize on the market. Additionally, the unusually cool summer provided ideal conditions for high production levels. In just one month, domestic production of concentrated nitric acid surged to 182,600 tons—a 134.82% increase from the previous period and a 131.7% rise compared to the same time last year. This marked a record high.
However, what few could have predicted was that prices would not only fail to rise but instead plummet during the peak season. As July began, the market supply and demand dynamics started to shift. Southern markets, which had seen rising prices just days earlier, suddenly reversed course, with prices dropping rapidly. Prices that had remained stubbornly high from May to June fell back within just two weeks. Some companies in Shandong even sold concentrated nitric acid below 1,250 yuan/ton, falling below their total production costs of 1,300–1,400 yuan/ton.
The concentrated nitric acid market has faced challenges since its peak in 2005. After repeated overcapacity issues since 2006, the industry continues to struggle. Four main factors have contributed to this: overbuilding of facilities, concentrated production surges, differing strategies among decision-makers, and excessive competition.
Since China transitioned from a planned economy to a market-driven system, concentrated nitric acid—as a basic chemical raw material—has attracted more companies. In the late 1990s, small-scale plants in Shandong led the way. By 2000, Western imports of 100,000-ton nitric acid equipment began entering the country, leading to plant upgrades and geographic expansion into Anhui, Jiangsu, and Henan. Between 2004 and 2005, prices exceeded 2,000 yuan/ton, drawing investor attention. With the domestication of production technology, the entry barrier lowered, and projects could be built and operational within two to three years. By 2006, most of these projects came online, triggering a supply surge that led to falling prices and shrinking profits.
According to statistics, the growth rate of nitric acid plant capacity was between 5% and 10% before 2000, rising to 18%–20% in the past five years, and reaching 31.25% in 2006. Without macro-level regulation, the industry suffered from overcapacity, lack of scale, and inefficient production. High energy consumption and production costs made many enterprises uncompetitive.
Historically, every major price crash in the nitric acid market has been linked to a sudden oversupply. In July 2007, this issue reached a critical point. As downstream demand increased and prices rose in June, companies with excess capacity ramped up production. However, the timing was poor, and the market’s peak season failed to drive prices higher. Instead, prices reversed sharply.
Efforts to stabilize the market began seven years ago. In 2000, Anhui Huaihua Group hosted an industry seminar. In November 2006, 14 major companies issued a self-help initiative in Jinan, opposing unfair competition and price volatility. The move led to a quick price rebound of over 200 yuan/ton. But in May 2007, when Qingdao-based companies tried again, differences among firms limited the effectiveness.
Ultimately, decisions on production, pricing, and sales depend on company leadership. Divergent strategies and business philosophies have weakened industry cohesion, leading to chaotic operations.
Experts suggest two paths forward: first, balancing profits and losses to set production limits; second, extending the industrial chain by developing downstream fine chemicals and high-value products. While the former offers immediate relief, the latter is a long-term solution. Either way, industry-wide cooperation is essential for recovery.
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