Concentrated nitric acid fading cause in the industry itself
The sharp rise in the price of concentrated nitric acid in July was driven by several clear and logical factors. First, it's a well-known seasonal trend that July marks the peak sales period for this chemical product. Second, the capacity expansion from 2006 had largely been absorbed in the first half of 2007, with no new facilities coming online in July. Third, the rising costs of basic raw materials—such as coal and pork—put additional pressure on production expenses. Finally, transportation costs also increased, further contributing to the overall upward trend in prices.
Given these conditions, nitric acid manufacturers, who had struggled with losses for two years, saw an opportunity to increase output and take advantage of the favorable market environment. Additionally, the relatively cool summer provided ideal operating conditions for high production levels. Within 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% jump compared to the same period last year. This marked a record high in production.
However, no one anticipated that the price would actually fall during what should have been a peak season. As soon as July began, the market dynamics shifted rapidly. Prices in southern markets, which had been rising just days before, suddenly reversed and plummeted. The price increases of tens of yuan seen in May and June were quickly erased within just two weeks. Some companies in Shandong even sold concentrated nitric acid below 1,250 yuan per ton, falling below their total cost range of 1,300 to 1,400 yuan per ton.
This dramatic drop raises the question: why did the concentrated nitric acid market, once so prosperous, end up in such a difficult situation? Industry experts point to four main causes: overcapacity due to repeated construction, sudden surges in supply, inconsistent decision-making among company leaders, and excessive competition within the sector.
Since China transitioned from a planned economy to a market-driven system, concentrated nitric acid has become a key raw material for many industries, attracting more companies to enter the market. In the late 1990s, small-scale plants in Shandong led the way, and by 2000, Western technology had started to be introduced into the country. Over the years, production expanded to provinces like Anhui, Jiangsu, and Henan. Between 2004 and 2005, prices exceeded 2,000 yuan per ton, drawing in investors. With the domestication of production technology and lower entry barriers, more projects were launched across the country. By 2006, these new facilities were all coming online, leading to an oversupply and a sharp decline in prices.
According to industry data, the growth rate of nitric acid plant capacity was between 5% and 10% before 2000, but jumped to 18% to 20% in the past five years, reaching a staggering 31.25% in 2006. Without proper macro-level regulation, the industry suffered from repeated construction, lack of scale effects, and inefficient operations. High energy consumption and production costs made it difficult for companies to compete effectively.
Historically, most market crises in the nitric acid industry have occurred when too much production hit the market at once. In July 2007, this issue was particularly severe. As demand from downstream sectors rose and prices increased, companies with available capacity ramped up production. However, the timing was off—new production came online too quickly, overwhelming the market and causing prices to drop instead of rise.
Industry self-help efforts date back seven years. In 2000, Anhui Huaihua Group organized a national meeting to address market challenges. In November 2006, 14 major companies issued a joint initiative in Jinan, calling for fair competition and responsible production. This led to a quick price rebound of over 200 yuan per ton. But in May 2007, another attempt in Qingdao failed due to internal differences among companies.
Ultimately, whether it’s about production planning, market control, or sales strategies, the decisions made by company leaders play a crucial role. Divergent business philosophies have weakened industry cohesion and led to disorganized production and sales activities.
Experts suggest two paths to save the industry: first, balancing profits and losses to set a minimum production price; second, expanding the industrial chain by developing high-value-added products downstream. While the former offers a short-term solution, the latter is a long-term strategy. Regardless of the approach, the entire industry must unite and act decisively to restore stability and profitability.
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