As China’s fertiliser
industry is facing heavy pressure by environmental protection measurements and
restructure, many market participants are unsure about the price development.
CCM predicts that the prices of fertilisers are not likely to surge in the
short term because of the unbalanced supply and demand situation as well as
other factors.
CCM
is predicting that China’s phosphate fertiliser prices will remain largely
influenced by market supply and demand and are impossible to increase
significantly in the short term. Even the recently announced capacity expansion
limitation in the middle and upper reaches of the Yangtze River will not change
that situation.
According
to market intelligence firm CCM, the Chinese think tanks and industry leaders
of the domestic fertiliser market have gathered in the Annual Meeting of
China’s Phosphate and Compound Fertilisers Industry in late April. It was
disclosed during the meeting that phosphate fertiliser manufacturers in the
middle and upper reaches of the Yangtze River will be strictly banned from
expanding capacity and will be required to relocate to industrial parks.
As
a fact, middle and upper reaches of the Yangtze River are the main production
area of phosphorus ore, pyrite, and natural gas. Hence, this region has
developed into the largest manufacturing base of phosphate fertiliser and
sulphuric acid in China. Due to the abundant resources, clusters of fertiliser
and inorganic chemical companies also operate in this region.
However,
the local demands for phosphate fertilisers are far below the capacities,
resulting in an unbalance. In 2016, the output of phosphate fertilisers in the
Yangtze River Economic Belt reached 15.19 million tonnes, 82.95% of the
national total. Nevertheless, the regional consumption was only 3.11 million
tonnes, far behind the national figure, which was 8.43 million tonnes. In this
context, the government attaches great importance to the structural reform and
capacity expansion restriction of this industry.
This
policy has made many market participants unsure whether the prices of phosphate
fertilisers in China will once again significantly increase.
The main reasons
against a fertiliser price rise
Looking
at the capacity control of phosphate companies located along the Yangtze River,
fertiliser prices should normally boost as a result. However, according to
CCM’s research, the supply and demand situation in China, combines with import
and export trends as well an environmental protection measurements contradict a
significant price rise in the near future.
China’s
production of phosphate fertilisers in the first quarter of 2018 went down by
7.2% compared to the same period last year. However, this small decrease is not
substantial enough to drive up market prices, neutralising the unfavourable
influence of low downstream demands. Currently, some compound fertiliser
companies have already purchased mono-ammonium phosphate (MAP) for storage,
which indicates the demand during the traditional peak season, which happens to
be in the months June and July, will be smaller than before.
The
FOB prices of China’s diammonium phosphate (DAP) have recently increased due to
the larger demands from India. However, this price is only slightly different
from the average domestic ex-works price in the first quarter. Therefore, the
domestic phosphate fertiliser prices are not likely to soar. Additionally,
China exported 2.71 million tonnes of MAP and 6.40 million tonnes of
DAP in 2017, relatively high records in recent years. However, the export
volumes this year are estimated to drop YoY triggered by the capacity increase
of some international enterprises.
Furthermore,
the phosphate fertiliser industry in China is now facing more stringent
environmental policies which require high-level disposal of waste water, gas,
and residues. Unqualified factories are to be rectified or shut down, reducing
the overall market supply of phosphorus ores and thus lifting phosphate
fertiliser prices. Nevertheless, the implementation of environmental protection
law may progress slowly, and so will do the price change. Even the operating
costs of phosphate fertiliser manufacturers will keep an upward trend, forcing
them to quote for higher prices, the actual transaction prices, on the other
hand, is strongly determined by downstream demand and market supply.
It
is worth noticing, that China's demand for fertilisers from the agricultural
industry is expected to slide down due to the implementation of the zero-growth
of fertiliser usage and a price cut of agricultural products. However, this
decrease can be easily offset by increasing demand from other industries,
preventing China's fertiliser prices from falling.
China’s fertiliser
industry
China
has developed into the world's largest manufacturer and consumer of
fertilisers. After all, the Middle Kingdom uses more than a third of the
world's fertilisers available, which is equivalent to the combined consumption
of the USA and India. China is in heavy need of fertilisers to
satisfy its growing demand for crops and other agricultural products.
According
to CCM, China uses 40% of its fertilisers on cereal crops, while another 33% is
used for fruits and vegetables. The biggest challenge that the country faces is
the feeding of its 1.4 billion population with only about 8% arable land.
Hence, chemical fertilisers are developed and produced heavily to boost crop
yields and scale up agricultural production. The excessive use of chemical
fertilisers, however, is raising environmental and food safety concerns.
China’s
fertiliser industry is facing both serious problems and new development
opportunities. serious oversupply, cutting excess capacity has been a
consensus. Currently, domestic fertilizer capacity has reached 200 million MT.
Along with the pressure from policies, reducing the use of fertilizer has
become inevitable.
About the article
The
information for this article comes from CCM, China’s leading market
intelligence provider for the fields of agriculture, chemicals, food and feed.
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