Chemical Fertilizers: Fierce Competition

By Chen Li, China National Chemical Information Centre

Reduction of the output

According to statistics of China National Chemical Information Centre, China’s chemical fertilizer capacity in 2016 was 91.4 million t/a (100%, the same below). Within that, nitrogenous fertilizer capacity was 60.6 million t/a, phosphate fertilizer capacity was 23.5 million t/a and potash fertilizer capacity was 7.3 million t/a. Due to surplus capacity for nitrogenous fertilizers and phosphate fertilizers, capacity added in 2016 was equal to decommissioned capacity. But potash fertilizer capacity increased.
According to statistics of the National Bureau of Statistics, there were 569 producers of base fertilizers in China during January-October 2016. Of the total, the number of nitrogenous fertilizer producers was 284, the number of phosphate fertilizer producers was 216 and the number of potash fertilizer producers was 69. As the market was slack during the whole year of 2016, operating rates were low. The total output was 61.6 million tons during January-October 2016, a drop of 1.9% from the same period of the previous year. Various factors such as an increase of raw material coal prices, supervision of environmental protection and production restrictions or suspensions pushed the prices of chemical fertilizers up from October, and operating rates also increased. Output of chemical fertilizers for the whole year of 2016 is estimated to have been 76.0 million tons, basically equal to the previous year.

Drops in both export amount and export value

According to statistics of the General Administration of Customs, China exported 22.6 million tons (physical goods) of chemical fertilizers during January-October 2016, worth RMB5.419 billion, drops of 19% and 38%, respectively, from the same period of the previous year. Except for ammonium chloride, ammonium calcium nitrate and small-packaged varieties, the export volumes of other chemical fertilizers declined.
China imported 6.2 million tons of chemical fertilizers in that period, a drop of 27% from the same period of the previous year. The import volume of major variety potassium chloride was 4.9 million tons, down 30%.

Basic stability of demand

Data from the National Bureau of Statistics show that the grain planting area in China was 113.03 million hectares (1 695.42 million mu) in 2016, a drop of 0.31 million hectares (4.72 million mu) and 0.3% from the previous year. The Ministry of Agriculture has vigorously promoted soil testing and formulated fertilization, adjusted the fertilizer application structure, changed the fertilizer application mode, highlighted the combination of organic and inorganic fertilizers and increased the utilization rate of fertilizers, inhibiting the growth of fertilizer demand. The demand for chemical fertilizers in agriculture is therefore believed to have been basically stable during the whole year of 2016.
As environmental protection, air pollution control in particular, is strengthened, industrial demand for nitrogenous fertilizers goes up. Power plant desulfurization/denitration and vehicle-use urea are new bright points, and related demand is expected to grow 8-10%. The demand for industrial ammonium nitrate, industrial ammonium phosphate and industrial potash salts in other industrial uses will also increase. As industrial demand is only a small portion of overall demand, however, its impact on the total consumption of chemical fertilizers is not big.

Price trends

Nitrogenous fertilizer capacity is in surplus, and the market has been oversupplied in recent years. New units boast advanced technology and advantageous scale. The price of raw material coal is low. The market prices of nitrogenous fertilizers have therefore declined year-by-year, being the lowest of the past decade in 2016.
The phosphate fertilizer market is also slack, declining during the whole year of 2016. Pushed by rising prices of raw materials ammonia and sulfur and the purchase of fertilizers for spring plowing in 2017, the prices of phosphate fertilizers increased at the end of 2016.
Potassium chloride as leads market trends of potash fertilizers. Potassium chloride prices in China are determined by prices in the international market. The market was mostly weak during 2016, due mainly to adequacy of resources and an expected reduction of negotiated prices in big contracts.
With the implementation of the policy for soil testing and formulated fertilization, the compounding rate of chemical fertilizers in China has increased constantly and is expected to reach 36% in 2016. Due to the drop of prices for nitrogenous fertilizers, phosphate fertilizers and potash fertilizers as raw materials, the prices of compound fertilizers in China declined throughout most of 2016 but started to recover at the end of the year as the prices of base fertilizers rose.

Functioning of the sector

Profitability in the chemical fertilizer sector has generally declined in the last five years. The decline was especially serious in 2016. Among 2 508 fertilizer enterprises (including all varieties), 451 suffered losses, an increase of 23.9% over the previous year. The sector’s main-business revenue was RMB734.4 billion during January-October 2016, a drop of 6.1% from the same period of the previous year. The total profit was RMB12.384 billion, a drop of 52.5%. The profit rate of the main-business revenue was 1.69% as compared with 3.33% in the same period of the previous year.
Strong enterprises in the sector accelerated M&A activities in 2016. In February 2016, Kingenta acquired assets (including production equipment, office equipment, trademarks, patents and stores) of Ekompany (an enterprise of slow/controlled-release fertilizers in the Netherlands) with EUR6.10 million. On April 7, Kingenta announced that it would acquire 100% of the gardening business of Compo of Luxembourg with not more than EUR116 million (around RMB850 million). will get fiercer and fiercer in the future.
Extension of the chemical fertilizer industrial chain in 2016 was focused on the planting sector. On April 5 Hubei Xinyangfeng Fertilizer Co., Ltd. made a strategic investment to acquire Kenorwal, a comprehensive farm company in NSW of Australia, paving for the introduction of chemical fertilizers from abroad and implementation of deep tillage in the agricultural sector of Australia. In April Hubei Xinyangfeng Fertilizer Co., Ltd. established wholly-owned Luochuan Xinyangfeng Fruit Development Co., Ltd. On July 17 Hubei Xinyangfeng Fertilizer Co., Ltd. acquired Jiangsu Green Port Modern Agriculture Development Co., Ltd. and became its holding company. One of the important measures taken by Hubei Xinyangfeng Fertilizer Co., Ltd. for its transition to modern agriculture is to combine its advantages in specialty fertilizers and directly participate in agricultural planting and farm product distribution.
Drive of specialty fertilizers: Fertilizers are oversupplied around the world today. With impacts from market competition and environmental protection, new fertilizer varieties are constantly developed. Some specialty fertilizers with low cost and satisfactory economic benefits that are also in line with the development of modern agriculture with “high effect, environmental protection, low carbon and energy conservation” have developed rapidly. Some advantageous compound fertilizer enterprises in China such as Kingenta, Stanley, Hubei Xinyangfeng and Yantai Zhongde have pursued R&D and production of various specialty fertilizers with high effect and low environmental impact such as slow/controlled-release fertilizers, water-soluble fertilizers and functional fertilizers. Base fertilizer enterprises such as Yuntianhua and China BlueChem have accelerated their pace of transition on the strength of their advantages in raw material, technology and brand, vigorously promoting upgrades of product structure and the production and sales of specialty fertilizers.
According to statistics of China National Chemical Information Centre, global capacity to make slow/controlled-release fertilizers reached 9.40 million t/a in 2015, after average annual growth of 13.9% from 4.91 million t/a in 2010. Global output of slow/controlled-release fertilizers was around 5.70 million tons in 2015, after average annual growth of 9.2% from 3.67 million tons in 2010. Global capacity for slow/controlled-release fertilizers is expected to reach around 12.00 million t/a in 2020, and output will likely be 7.60 million tons, after average annual growth of capacity and output of 5.0% and 5.9% during 2015-2020. Moreover, with increasing market demand, trace element fertilizers and bio-stimulants will also keep emerging.

Prospects in 2017

With impacts from both the drive toward zero growth chemical fertilizer demand and the supply-side restructuring in agriculture, agricultural demand for fertilizers will be stable with some decline in 2017. New capacity will be effectively inhibited. Export tariffs will likely be reduced further or eliminated. Oversupply in the domestic market will be eased. Market competition will however still be fierce. On the whole, China’s chemical fertilizer sector will subsist amidst integration, transformation and turbulence in 2017, but the market will be better than in 2016.
In the spring of 2017, chemical fertilizers prices will likely keep rising, as in recent months, and stay high. The firm market will last till April-May with small fluctuations, and the overall situation will be better.