Yellow Phosphorus Market Remains Sluggish    

Since 2008, according to the economic situation, the Chinese government has adjusted the yellow phosphorus export tariff for several times. It levied a 100% additional export tariff on yellow phosphorus on May 20th, 2008 and then adjusted the additional tariff from 100% down to 75% on December 1st, 2008 and later down to 50% on January 1st, 2009. Since July 1st, 2009, China has cancelled this additional tariff and lowered the export tariff of yellow phosphorus from 70% to 20%, with obvious intention to promote the export of yellow phosphorus by gradually easing the restraint on its export. However, because of the demand shrink in the international market by the international financial crisis, till now this tariff reduction policy has not gone to significant effect. Although the export volume of yellow phosphorus in July 2009 was 2 500 tons more than in June 2009, its monthly export price declined by US$1 289/t.

Overcapacity    

Experts believe that this was caused by China's serious overcapacity of yellow phosphorus. In China's major yellow phosphorus production bases such as Yunnan, Guizhou, Sichuan and Hubei provinces, various sizes of yellow phosphorus production plants have been built in the past 20 years due to the big entry threshold. Jiangsu Malong Guohua Industrial and Trade Co., Ltd. is China's largest yellow phosphorus sales company with an annual yellow phosphorus sales volume of over 100 000 tons. As to China's overcapacity of yellow phosphorus, a manager of the company said: "The capacity of yellow phosphorus has exceeded 2 million t/a in China, but some enterprises are still expanding their capacity. The plight of the yellow phosphorus industry seems to be caused by the sluggish market, but in fact oversupply is the root cause."

Slack demand    

Undeniably, the weak yellow phosphorus demand in the downstream sectors makes yellow phosphorus producers very miserable. According to knowledgeable sources, the current operating rate of yellow phosphorus enterprises is generally low, only about 30% in Yunnan province and less than 30% in Sichuan and Hubei provinces. Only in Guizhou province, under the local government's policy support, the operating rate remains about 60%. With bans on the production and sales of five highly toxic organophosphorus pesticides, such as methamidophos, parathion, methyl parathion, monocrotophos and phosphamidon, and the sharp drop in the sales of glyphosate, the pesticide industry's demand for yellow phosphorus will significantly decline. At present, the total inventory of yellow phosphorus has reached 20 000 tons in China. China's yellow phosphorus production is expected to be 75 000 t/a in 2009, down more than 15% year on year.
   Meanwhile, due to the impact of the international financial crisis as well as China's restrictions on the exports of some primary phosphorus products like phosphoric acid and the ban on the use of phosphorus in the detergent industry, the demand and production of major phosphates like sodium tripolyphosphate have gradually decreased. As a raw material of phosphates, phosphorus' market together falls into the bottom. "We now only maintain a small-scale phosphate production. We have to suspend production of all industrial-grade phosphates and only produce relatively highly value-added feed-grade, food-grade, pharmaceutical-grade and electronic-grade phosphate products," said Wang Jian, Deputy General Manager of Mianyang Aostar Phosphorus Chemical Industry Co., Ltd. in Sichuan province, which has a comprehensive phosphates production capacity of 60 000 t/a. Knowing that manufacturing yellow phosphorus now cannot get any profit, the company only maintains a small-scale production of phosphates with yellow phosphorus purchased from Yunnan and Guizhou provinces, so as to retain its existing market and long-term customers. The company's monthly output of yellow phosphorus is now only one fifth as its past.

Prices continue to decline   

The overcapacity and weak demand have led to the drop in the price of yellow phosphorus. In July 2009, the monthly average price of China's exported yellow phosphorus was US$2 438/t, down 37% from US$3 871/t in January 2009. Because the sales price of yellow phosphorus is significantly lower than its production cost, yellow phosphorus enterprises in China generally suspend or cut their production. The number of enterprises running under deficit rises rapidly. Although some local governments give subsidies to yellow phosphorus producers in purchasing electricity, the subsidies are not enough to offset their losses.
   Following the government's environmental protection policy, many enterprises in China have eliminated a lot of small-scale and high-pollution yellow phosphorus production lines in the past three years. China also has lowered the entry threshold of the yellow phosphorus industry. But an expert of the National Phosphate Cooperative Group says that the Chinese government's force on elimination of backward capacity is still not strong enough, and that mainly relying on the regulation by the market mechanism will inevitably elongate the phase-out period.
   "Yellow phosphorus manufacturing enterprises just temporarily stop their production. As long as the market price of yellow phosphorus rises to a point to be profitable, these suspended production lines will resume production immediately. Therefore, China's yellow phosphorus enterprises will still have a very long and hard way to go," he adds.