Phosphate Fertilizer Development hides worries

Competitive advantages promoting production development

With the support of several favorable policies, the phosphate fertilizer sector in China has presented a rapid development and great achievements in recent years.

1. Extensive market space

The rapid economic growth in recent years has created a sound external condition for the development of the phosphate fertilizer sector. With the encouragement of several favorable policies, the initiative of farmers in grain production is greatly enhanced and the consumption of phosphate fertilizers has a constant increase. The phosphate fertilizer sector has therefore developed rapidly. The output of phosphate fertilizers (100% P2O5) was 10.753 million tons in 2005 with an average annual growth of 13.2% from 2000 to 2005. It is far beyond the expectation that made before the WTO accession.

2. Diversified products

China has highlighted the development of phosphate fertilizers with low concentration. Their output proportion has increased constantly and eased the market competition pressure from phosphate fertilizers with high concentration. With the development of phosphate fertilizers with high concentration, the competition between domestic products and imported products will become fiercer. In the Chinese market, products with competitive advantages over foreign products are DAP (di-ammonium phosphate) and NPK (nitrogenous, phosphorus and potassium compound fertilizers). Major advantages of domestic products include low market cost, low selling price and good property/price ratio. As the quality of domestic products is not stable, domestic enterprises should pay great attention to the improvement of product quality stability and the upgrade of technical service level.

3. Favorable policy support

In order to guarantee agricultural production and grain safety, China has offered several favorable and supportive policies to the phosphate fertilizer sector in transportation, power price and tax, so as to provide sound conditions for the rapid development of phosphate compound fertilizers with high concentration.



Challenges placed before the phosphate fertilizer sector

1. Weak competitive edge of producers

Compared with the major phosphate fertilizer producing countries, the competitive edge of phosphate fertilizer producers in China is weak. Main reasons include the following. (1) Producers have a great number but a small scale. China has more than 500 phosphate fertilizer producers. More than 60% of them have an annual output of less than 5 thousand tons. (2) The market share is low. The domestic market share of most producers is less than 5% and the domestic market share of most NPK producers is less than 1%. (3) Many producers have poor business operation. Since 2000 around a quarter of phosphate compound fertilizer producers have suffered loss. (4) The high price of raw materials has resulted in an inferior position of production cost.

2. Worries in resource prospect

The Ministry of Land and Resources has regarded phosphorus ore as one of the minerals that can not meet the needs in the development of the national economy after 2010. Main reasons include the following. (1) The transportation of phosphorus ore will become a bottleneck for the development of phosphate compound fertilizers. Sixteen million tons of phosphorus ore has to be taken out from Yunnan and Guizhou provinces with abundant phosphorus ore reserves. The shortage of traffic capacity caused a serious overstock of phosphorus ore. It is expected that the demand of phosphorus ore transportation will be higher and more phosphate fertilizer producers will be affected. (2) The technical level of phosphorus ore mining is low. The recovery rate is less than 40%. The consumption of high-quality phosphorus ore is more than 100 million tons a year. (3) The export of phosphorus ore has aggravated the shortage of domestic resources. The export amount of phosphorus ore increased from 630 thousand tons in 1993 to 4.91 million tons in 2001 and was maintained at more than 3.0 million tons from 2002 to 2004. (4) The rapid development of the phosphate fertilizer sector has led to a supply deficit of sulfur resources. The import amount of sulfur drastically increases. The import amount of sulfur in China has accounted for around 25% of the total sulfur trade amount in the world in recent years. Due to the long transportation distance, the import price of sulfur in China is much higher than other importing countries and the international competitive edge of phosphate compound fertilizers produced in China is affected.

3. Oversupply in the international market

At a time of chemical fertilizer oversupply in the world today, phosphate fertilizers are mainly produced in the US, Morocco, Russia and China. China has become the major region for the next-step expansion of foreign producers. If foreign corporations use their own resources to produce phosphate fertilizer and export the products to China, the competitive edge will not be strong. If foreign enterprises use their own advantages in enterprise management and product brand and Chinese favorable conditions in resources and environment to construct plants in China to produce phosphate fertilizers and sell the products to the Chinese market, the competitive edge will be quite strong.

4. Lack of competitive marketing system and product brand

Domestic products are still in an inferior position in terms of marketing system and product brand. When the product quality is the same, the selling price of domestic products is much lower than foreign products. The price difference is RMB200 to 400 per ton. Due to the separation between production, sales and utilization, most domestic producers have failed to establish complete agrochemical service and marketing systems. Foreign companies paid great attention to the establishment of marketing systems and product brands. Some foreign companies have already created their product brands and established agrochemical service technical systems in the Chinese market.