China's Strategy to Withstand Rising Fertiliser Prices

The war in the Middle East between the United States (US) and Iran is also dragging the global fertiliser market into pressure. Global fertiliser prices have surged sharply due to supply disruptions and trade route interruptions. Nevertheless, China has been able to withstand this because its fertiliser industry largely relies on coal, not natural gas. Every year, farmers worldwide use nearly 200 million tonnes of the three main plant nutrients: nitrogen, phosphorus, and potassium. These three are essential elements needed for plant growth. According to Refinitiv, nitrogen is the largest component in global inorganic fertiliser use. In 2023, nitrogen-based fertilisers accounted for about 58% of total global fertiliser production. One of the most widely used types of nitrogen fertiliser is urea. Urea is a single inorganic nitrogen fertiliser because it only supplies nitrogen to plants, not potassium or phosphorus. Nitrogen is vital for plant growth and is required in large quantities. However, plants cannot absorb nitrogen directly from the air and water like oxygen or carbon. Therefore, plants’ nitrogen needs must be met through fertilisers, one of which is urea. China’s Independence Thanks to Coal China’s self-sufficiency in urea production is largely supported by coal. China has mostly been able to meet its urea needs from domestic production, with about 78% of its output coming from coal, not natural gas. This is the main difference between China and other major exporters such as Qatar, Russia, and Saudi Arabia, which largely rely on natural gas. Technically, the process of converting coal or gas into urea is fundamentally similar. However, there are some key differences in the initial production stage. In the coal-based route, coal is processed through gasification to produce the base material that is then used in urea production. Meanwhile, the natural gas-based route relies more on processing gas as the initial energy and raw material source. Urea production can be carried out using two main raw materials: coal-based and natural gas-based. In the production of urea using coal, the process begins by feeding coal into a gasifier reactor mixed with oxygen and hot steam at high temperatures to produce syngas or synthesis gas. In contrast, for the natural gas basis, the gas is first processed through steam methane reforming using hot steam. This process also produces synthesis gas but does not require oxygen at the beginning. From this synthesis gas, both raw material sources similarly produce hydrogen and carbon dioxide. The hydrogen is then mixed with nitrogen taken from the air to form ammonia. After that, carbon dioxide is mixed with ammonia to produce urea. From Energy to Fertiliser The coal-based production model gives China access to abundant domestic energy. Thus, China can reduce the impact of global gas price volatility and supply disruptions. This advantage was evident during the Iran war that broke out at the end of February 2026. That war disrupted shipping through the Strait of Hormuz, a route handling about 30% of global fertiliser trade. As a result of these disruptions, global urea prices surged by around 70%. However, conditions in China were different. The Bamboo Curtain country was still able to maintain a large enough stock. Consequently, urea prices in China remained much cheaper, even about one-third of the global benchmark price. Coal Investment as China’s Shield China’s coal-based urea production reflects the vast domestic resources possessed by the country. It also shows the results of long-term investments in coal-to-chemicals infrastructure, as well as policy focus on fertiliser self-sufficiency and food security resilience. Such advantages are possessed by only a few other urea-producing countries. China’s fertiliser industry developed alongside a coal-based heavy industry system, not gas-based. The United Nations Food and Agriculture Organisation or FAO states that nitrogen fertilisers dominate global fertiliser use and production. China is also the world’s largest producer and user of nitrogen fertilisers. China is a Major Exporter, But Now Withholds Supplies China is not only a major producer but also a major exporter of main fertilisers. Last year, China contributed about one-fifth of fertiliser imports to Brazil, Indonesia, and Thailand. For Malaysia and New Zealand, the share of fertiliser imports from China reached about one-third. This data comes from the International Trade Centre. Meanwhile, for India, the share is about 16% based on that country’s trade data. However, China is now restricting fertiliser exports. Based on an analysis cited from Refinitiv of China’s customs data, between half and 80% of those exports are now restricted. This move is making the global market even more concerned because previously many buyers hoped China could step in and fill the supply shortfall. “Buyers hoped China would step in and fill the supply shortfall, but this decision will only tighten supplies further,” said an official from a fertiliser company based in New Delhi regarding the latest restrictions, quoted from Refinitiv. China supplies a large portion of major countries’ fertiliser imports. Therefore, Beijing’s decision to hold back exports could have widespread impacts on the global market. Industry sources say China is tightening fertiliser exports to protect its domestic market. However, this step adds pressure to the global market already grappling with supply shortages due to the US-Israel war against Iran. China is one of the world’s largest fertiliser exporters. The value of its shipments reached more than US$13 billion last year. The country also has a history of controlling exports to keep fertiliser prices low for domestic farmers.