This article was
originally published in a slightly different form on Feb. 20 at Speciality
Chemicals Magazine.
According
to market intelligence firm CCM, the year 2017 will show a significant decrease
in the output, demand, as well as the export volume of fertilisers in
China. The main factor, that will have a huge impact on the trend, is the
effort of China’s government in implementing new environmental protection
measurements.
Source: Pixabay
The fertiliser industry
in China showed a weak performance throughout the year 2016. The first positive
signs of a rebound of the low price appeared with the traditional winter
stockpiling season in the end of the year. Hence, many industry insiders are
predicting a price rebound from that drop in 2016, backed up by rising costs of
production as well.
However,
CCM states, that the whole market will remain on a low level in China in 2017,
mainly due to the continuing process of de-capacity.
The
overall market situation in 2017 will be likely marked by five main factors:
The output will decrease, the demand is going to be reduced, the export sector
will also be weak, the price will increase slightly due to rising costs, and
the business will be overall influenced by the increased effort in
environmental policies in China.
The five main factors
for 2017
All
these factors will be elaborated in the following paragraphs.
According
to CCM’s research, the capacity of fertilisers in China reached the
amount of 131.67 million tonnes in 2016. Furthermore, the output
stated an amount of 80.11 million tonnes. Looking at the comparable low
demand of only 66.10 million tonnes, an excess production of more than 14
million tonnes becomes obvious. This overcapacity
of fertilisers in China will be a big problem in 2017, forces many
enterprises to lower the production because of cheap prices and very low
profitability. The slowed down operation rates will lead to a lower output in
2017.
The
domestic demand for fertilisers in China is going to reduce as well.
First of all, China is decreasing the area for agricultural use, leading to
less planting area and therefore to lower need for fertilisers. The
reduced planting area is the result of decreasing prices for agricultural
products and the low enthusiasm of China’s farmers to grow more plants.
Furthermore, China’s government has revealed the plan of zero increase
in fertiliser usage. Many methods and testing are going on to
increase the effectiveness of using fertilisers and be able to use
less of them. While the tests are showing first results, the demand
for fertilisers will further go down. Particularly several crops in
the north and south regions of China have been improved in needing
fewer fertilisers, the demand will be on a lower level for the year 2017
once more.
China
has announced the cancellation of some favorable policies for
the fertiliser industry. This leads to higher costs for the Chinese
producers and therefore less competitive advantage in 2017. Only a few
producers were able to find their export market yet, leaving many Chinese
companies behind. Also, the international fertiliser capacity will be
increased in 2017, leading to a lower export volume in general and even an
expected decrease of around 10% in China, according to CCM.
The
prices of fertilisers in China are going to show a rebound in 2017
and rise to a certain extend. Price rises up to almost USD60/t are a
possibility. The driving factors for this development are the increasing prices
of raw materials for fertilisers, like phosphate ore, sulfur, urea, and
liquid ammonia. Also, the transportation fees for the materials will increase
in 2017, as well as the costs for coal and electricity.
The
last factor, influencing the fertiliser business in China mainly in
2017, is the stricter environmental policy. Many manufacturers are already
facing production reductions and shutdowns, due to the measurements of China’s
environmental bureaus. Many producers also have to implement expensive waste
disposal treatments, leading to increasing costs and reduced output. This
development will likely change the demand and supply situation in China
throughout the year 2017.
About CCM
CCM is
the leading market intelligence provider for China’s agriculture, chemicals,
food & ingredients and life science markets.
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