Glyphosate Makers' Pain
Glyphosate Makers' Pain
By John Weiner
In early 2010, driven by the increased prices of glycine, paraformaldehyde diethanolamine and other raw materials, the price of glyphosate technical material (active ingredient) witnessed a slight rebound in the first quarter, reaching RMB25 000 per ton. It returned immediately to RMB22 000 per ton in April, in response to the crazed capacity expansion and the US's recently raised dumping investigation on China-made glyphosate. The export of glyphosate became more difficult.
Attracted by the huge gross margin enjoyed by glyphosate producers in 2007, many Chinese companies had invested at that time in new glyphosate projects and entry conditions were low. As of the end of 2009, China reportedly had 120 glyphosate active ingredient producers with a combined production capacity of 1.03 million t/a. However, the actual output in 2009 was only 490 thousand tons, a 47.6% capacity utilization rate on average. Zhejiang Wynca Chemical Group Company Ltd leads the domestic glyphosate production sector with a capacity of 80 000 t/a. Fuhua Tongda Agro-chemical Technology Co Ltd comes next with 70 000 t/a and is constructing the second phase 50 000 t/a unit. Nantong Jiangshan Agrochemical and Chemical Co Ltd is also capable of producing 70 000 tons per year. Anhui Huaxing Chemical Industry Co Ltd and Jiangsu Good Good Harvest-Weien Agrochemical Co Ltd each have a capacity of 50 000 t/a. Six companies have the capacity to make 40 000 tons of glyphosate per year - Jiangsu Yangnong Chemical Co Ltd, Zhejiang Jinfanda Biochemical Co Ltd, Hubei Sanonda Co Ltd, Jinma Chemicals Co Ltd, Anhui Guoxing Biochemical Company of the Nanjing Red Sun Group Corporation and Zhejiang Shenghua Biok Biology Co Ltd. Several new and expanding projects will come on stream at the end of 2010, adding 150 000 t/a in total capacity. The crazed expansion that began in 2007 has not ended yet. Although having no expansion plans elsewhere, Monsanto, the world's largest glyphosate manufacturer, resumed production of a 100 000 t/a line, and moreover, it completed the US$200 million expansion of its New Orleans plant on March 5th this year, bringing its total capacity to 240 000 t/a or increasing 20%, which also marks that the US's domestic demand for glyphosate will be met by domestic production.
It is predicted that the global demand for glyphosate is around 700 000 tons this year. Deducting the 340 000 t/a capacity in other countries, only 360 000 tons demand is left for Chinese producers that will have a combined production capacity of 1.18 million t/a at the end of 2010.
Globally, the planting area of transgenic crops is expected to grow in 2010, like in the USA, Argentina and South American countries. This growth has not yet driven the sales of glyphosate as of April. The demand for glyphosate in the countries with transgenic crops is in the slow season now and will be brisk between September and November. In this year's abnormal weather conditions, the actual planting area of transgenic crops may be below the expected. With the financial crisis having spread in the world, large credit problems may trouble more and more countries, which has made traders more cautious. The demand for glyphosate in Brazil has really increased, but the low credit grade of Brazilian farmers has always brought about troubles for the foreign agencies of Chinese pesticide producers. Glufosinate ammonium and paraquat are robbing the market share of glyphosate in serving transgenic crops. These unfavorable factors all have impacts on the demand for glyphosate.
China used to export 90% of the glyphosate technical materials it made. Given the serious overcapacity, the export price was controlled by the agencies in the destinations rather than the end users. Expensive and complicated registration for selling pesticides in the countries outside China has blocked most Chinese glyphosate makers. Around 90% of China's exported glyphosate is sold through destination agencies. These agencies usually cooperate with Chinese companies with large scale, regular management and excellent product quality. For instance, Syngenta of Switzerland signed a long term agreement with Nantong Jiangshan Agrochemical and Chemical Co Ltd. Helm AG of Germany has been an agent of Jiangsu Yangnong Chemical Co Ltd. Anhui Huaxing Chemical Industry Co Ltd has always exported glyphosate to Argentina through Crescites SA. A long term agreement has been signed between Nufarm Limited of Australia and Fuhua Tongda Agro-chemical Technology Co Ltd. China's overcapacity in producing glyphosate is well know in the world, so agencies have more opportunities to get cheap glyphosate technical materials from Chinese makers in order to earn high margin, which is reportedly as high as 50%, from selling glyphosate formulations in their nations.
Counting on the current prices of raw materials, the production cost of glyphosate technical materials for Chinese makers has reached around RMB23 000 per ton. The waste water generated in the production of glyphosate can currently be sold in the form of 10% glyphosate formulation by roughly treating, adding pure water or glyphosate active ingredient. China banned production of 10% glyphosate formulation, effective January 1st, 2010 and will stop its sales in the domestic market from January 1st, 2012, which means all glyphosate makers will increase input in treating waste water and production costs will continue to go up.
On March 31st the U.S. company Aibaugh Inc. announced it had filed an anti-dumping petition with the U.S. Department of Commerce and the U.S. International Trade Commission against imports of glyphosate from China. Aibaugh Inc claims that the Chinese industry created the conditions of oversupply that have led to the volatility in glyphosate pricing. The data supplied by Aibaugh Inc show that China exported US$912 million of glyphosate to the U.S. in 2009, with a dumping rate between 299.65% and 349.65%. Seven Chinese companies, all leaders in this sector, are included in the dumping list. If an investigation had been undertaken, it is expected to impact the glyphosate market in 2011. The good news for Chinese makers is that Aibaugh cancelled its petition on April 29th.
The selling price fell below the cost, small and medium makers have to maintain a low operating rate or shut down temporally. A strong rebound of glyphosate prices would depend on two essential underlying conditions - the international demand for glyphosate rebounding greatly and China eliminating 50% of its existing capacity.