By Shi Xuxu, Oilchem

Policy-led fertilizer market development

According to the notice  "Action Plan for Reducing Chemical Fertilizer by 2025" issued by the Ministry of Agriculture and Rural Affairs, the national usage of agricultural fertilizers is required to be stable-to-lower by 2025, with the proportion of organic fertilizer application area to increase by more than 5 percentage points, the coverage rate of soil testing and formula fertilization technology for major crops in China to be stable at over 90%, and the fertilizer utilization rate for the three major grain crops in China to reach 43%.  At the same time, according to the Development Strategy of Phosphorus and Compound Fertilizer during the 14th Five-year Plan period (2021-2025) issued by the Phosphorus and Compound Fertilizer Industry Association, the compound fertilizer industry will continue to focus on green development, transformation and upgrading, as well as quality and efficiency enhancement as the key goals, and it will also improve the compound rate further.

Against the background of Chinese government’s efforts to achieve Carbon Peaking and Carbon Neutrality Goals, the dual control of energy consumption and energy intensity, and stable food supply, as well as to carry out the policy of maintaining supply and stabilizing price for domestic fertilizer market, compound fertilizer producers should continue to upgrade technologies and improve energy conservation and emission reduction in the process of production from the angel of the overall industrial development. As for the growth of varieties, producers should produce high-quality fertilizers that meet the needs of quality agriculture. In addition, producers should focus on improving the utilization rate of fertilizer during the application process. In terms of industrial scale, producers should place emphasis on reducing total output while increasing output of new products. As for industrial structure, producers should connect upstream and end-user segments. In terms of product structure, they should attach importance to improving efficiency while expanding functionality.

Inevitable setbacks in the process of optimizing supply and demand

We can see from the units in planning and under construction that big-sized producers have never stopped their pace of laying out production bases across the nation. According to incomplete statistics, 4.3 million tons of capacity will be constructed in 2024, and the release of the new capacity will beat the domestic compound fertilizer market that has been imbalanced between supply and demand. Once the supply is excessive, vicious price competition will be inevitable, which will pull down the overall prices. Figure 1 shows the forecast of compound fertilizer capacity in China during 2024-2028.

   Figure 1 Forecast of compound fertilizer capacity in China, 2024-2028

Forecast of feedstock cost

Urea: The production will keep growing, and the supply and demand may be loose in 2024. In addition, changes in export volume will continue to affect the market trend. The urea prices will continue to fluctuate widely, with big possibility that the key price range will be lower compared to 2023. It is expected that the mainstream offers for small and medium-sized particles (ex-works, Shandong) may fluctuate around RMB1 850-2 500/ton.

Phosphate fertilizer: The spot prices of ammonium phosphate in China are expected to decrease in 2024, with an average annual price estimated around RMB2 850/ton.

Potassium fertilizer: The prices of domestic potassium fertilizer will fluctuate according to the seasonal demand in 2024. According to the seasonal demand in the past two years, demand for potassium sulfate as a water-soluble fertilizer will be strong in autumn after the prices of potassium chloride and potassium sulfate have returned to normal levels. However, with the autumn coming to an end, prices may fall rationally, waiting for the storage activities in winter.

According to the overall trend of the three main raw materials in 2024 (Figure 2), it is very likely that their prices will be lower compared to the levels in 2023, which will drag down compound fertilizer costs and affect the price trend of compound fertilizers. 

Figure 2 Price trend of major raw materials for compound fertilizer in 2024

Forecast of downstream demand

Figure 3 shows the proportion of downstream demand for compound fertilizers in 2023. At present, compound fertilizers are mainly consumed in food production. The overall capacity of food is required to increase stably in 2024 and the output will be maintained at above 1.3 trillion catties with an aim to ensure basic self-sufficiency of grains and absolute safety of food ration. In the context of the food security strategy, agricultural demand will be stable-to-stronger, which will provide favorable support for the demand for compound fertilizers. In addition, given the development of green agriculture, the price gap between new fertilizers and conventional fertilizers is projected to narrow further, indirectly squeezing out the shares of conventional fertilizers. However, this will take some time. Therefore, it is expected that the demand for compound fertilizers will not have big changes in 2024.

Figure 3 Proportion of downstream demand for compound fertilizers in 2023

Market outlook

Based on the above factors, despite an improvement in supply and demand, supply remains excessive. In the meanwhile, feedstock costs are likely to decrease, so the compound fertilizer market is expected to recover rationally in 2024 (Figure 4), but there may be some retreats given the influence of policies (such as export policies). In a nutshell, the prices will be in a narrower range. Taking 3*15 sulfur-based compound fertilizer as an example, the mainstream price range is expected to be around RMB2 300-2 800/ton.  

Figure 4 Price forecast of compound fertilizers in China in 2024