Price Rise of Raw Materials Promotes Price Recovery of Glyphosate   

By Zhang Weinong, Pesticide Market News   

The sales price of glyphosate in domestic and overseas markets already increased from around RMB20 000 per ton to RMB24 000 per ton by the end of 2009. The price rise of raw materials is the main reason for the price recovery. Glyphosate production processes mainly include the glycine process and the iminodiacetic acid (IDA) process. Raw materials include glycine, dimethyl phosphite, paraformaldehyde, iminodiacetonitrile, diethanolamine, phosphorous acid, liquid caustic soda, sulfuric acid, hydrogen peroxide and hydrochloric acid. Prices of basic chemical raw materials have recently gone up. The price of yellow phosphorus has increased from RMB11 000 per ton to RMB17 000 per ton. The price of chlorine has increased from over RMB800 per ton to RMB1 600 per ton. The price of sulfur has also seen an increase of over 10%. Prices of all raw materials for glyphosate production are therefore higher than before. Despite a slow pickup of glyphosate prices, the glyphosate producers are experiencing great cost pressure, and the operating rate of small and medium enterprises is still low.
   Except for March 2009 when the price of glyphosate rose briefly to RMB29 000 per ton, the price has hovered at RMB20 000-22 000 per ton in 2009. Due to such low prices and the export constraint, most glyphosate producers are producing at a loss.
Due to the soft demand for its leading products glyphosate and silicone, plus the unduly capacity expansion in the domestic market, the gross profit of the two products in Zhejiang Wynca Chemical Group Co., Ltd., a leading pesticide producer in China, reduced apparently, causing a drastic drop of the net profit in the company. The glyphosate capacity in Nantong Jiangshan Agrochemical & Chemicals Co., Ltd. is 70 000 t/a. Although the company has signed agreements with Syngenta and Helm of Germany and therefore has the advantage of long-term purchase orders in glyphosate sales, as the export price has dropped to the cost line, the sales revenue and the net profit of the company are both lower than those in the same period of 2008. Sanonda has 5 000 t/a of glyphosate capacity. Due to the supply/demand change in the international market, the price of glyphosate has declined constantly and the company has suffered great loss. According to statistics, nearly 50% of glyphosate producers in China have suspended production or maintained only a low operating rate.
   At a time of cost increases and slack demand, the pickup of glyphosate prices will not help increase profits in most small and medium enterprises. Producers with considerable scale such as Zhejiang Wynca Chemical, Nantong Jiangshan Agrochemical & Chemicals, Jiangsu Yangnong Chemical Co., Ltd., Jiangsu Good Harvest-Weien Agrochemical Co., Ltd. and Zhejiang Jinfanda Biochemical Co., Ltd. have strong financial standing and also have stored great quantities of low-cost raw materials. They can therefore gain profits in present glyphosate business. According to statistics, 106 domestic enterprises and 5 foreign enterprises have registered to make glyphosate technical in China. Their combined capacity reaches 600 000 t/a. The actual output of glyphosate technical was close to 480 000 tons in 2008. It is reported that the 100 000 t/a glyphosate production line of Nanjing Red Sun Group Corporation will be completed at the end of 2010. Construction on other large enterprises' new and expansion glyphosate projects have already been started and these projects will be completed in 2010. The capacity of glyphosate will increase around 150 000 t/a at that time. According to 2008 statistics however, the annual worldwide demand for glyphosate is only 700 000 tons. The irrational expansion of glyphosate capacity in China will inevitably lead to oversupply.
   While the price of glyphosate is picking up gradually, the cost of making it has also increased apparently. A considerable portion of profit from the higher sale prices is passed on to producers of upstream products. Due to the recovery of crude oil prices around the world and the restorative growth of GM (genetically modified) crop planting areas in the United States, Mexico and Argentina, the price of glyphosate has no space for drop. With the improvement of the world economy, the macro economy in China has gradually shaken off impacts from the global financial crisis and is recovering. Besides, China has continued to implement policies to support farmers. It is therefore expected that there will be another opportunity for glyphosate prices to rise in the brisk pesticide buying season from April to May 2010.
   According to experts, with the improvement of the economy both at home and abroad, glyphosate still has a bright prospect. There are however three problems worth attention in the glyphosate sector. First of all, glyphosate capacity must be reduced. The output of glyphosate should go down to around 300 000 tons a year. The government should integrate the glyphosate sector through macro measures and force serious polluters and poor performers out of the market. This is essential for increasing industrial concentration and for sound development of the entire glyphosate sector. Secondly, domestic glyphosate producers must register abroad. The world's glyphosate capacity is mainly distributed in China and the United States. The consumption of glyphosate in the domestic market is only around 50 000 tons a year, so 80% of glyphosate produced in China is for export. Registration in target markets is however completed by foreign dealers and export today is conducted through third parties. Most of the profits are therefore reaped by dealers. The Chinese government should encourage and support domestic glyphosate producers to register and get certified in the United States, EU and Japan. Thirdly, the export of glyphosate formulations should be promoted through registering formulations abroad. Glyphosate exported by China is mostly glyphosate technical. Formulations as final products can be exported only to Southeast Asia. China exports no formulations to the major glyphosate application regions such as the United States and South America. The development of the glyphosate sector in China is therefore restricted.