China's Pesticide Market Faces Reorganization and High Cost in 2012   

By Zhang Weinong

Guided by the Pesticide Industry Policy and 12th Five-Year Special Plan for the Pesticide Industry, China's pesticide industry aims to continuously promote production safety and environmental protection, strengthen management, increase R & D funding, and closely cooperate with retailers and traders in 2012. This year, with the global downturn, slower domestic growth, and soaring material costs, the domestic pesticide market will be characterized by:

1 Reorganization

    * Pesticide producers with aging equipment, large inventories and tight cash can hardly survive.
    * Due to pesticide-related food safety incidents in 2011, the State will supervise the pesticide industry more seriously in 2012.
    * Expenses for environmental protection will be up sharply because of strict requirements.
    * The sagging salability of pesticide output -  especially for low-end pesticides - along with rising costs for production (including higher labor costs), all of which have existed since 2008, are toughest on small enterprises, leading to some bankruptcies.
    * State polices will support competitive enterprises, and large-scale companies will be established through affiliation, mergers, reorganization etc. At present, many listed companies such as Shenzhen NOPOSION Agrochemicals Co., Ltd. (SZ: 002215), Lier Chemical Co., Ltd. (SZ: 002258), Zhejiang Wynca Chemical Industrial Group Co., Ltd. (Wynca Chemical, SH: 600596), Jiangsu Yangnong Chemical Co., Ltd. (SH: 600486), etc. are integrating small and medium pesticide enterprises, striving for the international competitiveness. In addition, some other listed companies including Shandong Dacheng Pesticide Co., Ltd. (SH: 600882), Fujian Sannong Group Co., Ltd. (SZ: 000732), etc. have shifted their business focus from pesticides to iron ore and fluorine chemicals.

2. Huge Cost Pressure

    * In 2012, the price of basic raw materials will soar. Some pesticides' price will also increase but cannot catch up with the growth of costs, thus creating huge cost pressure for enterprises.
    * At the beginning of 2012, influenced by the steady climb in global crude prices and increasing domestic electrovalency, the price of Chinese pesticides' main raw materials like liquid chlorine, caustic soda, methanol, benzene, synthetic ammonia, yellow phosphor, ethanol, sulfuric acid, sulfur, formaldehyde etc. will remain high.
    * With the increasing price of yellow phosphorus, the prices of organophosphorus pesticides, products of chlorpyrifos, profenofos, trichlorphon, dichlorvos etc. is expected to grow over 10%. Producing glyphosate costs more because the price of polyoxymethylene, its major raw material, keeps rising. At the same time, due to soaring natural gas prices, it is more expensive to produce glycine and iminodiacetonitrile with natural gas as raw material. Furthermore, climbing international prices of crude oil result in a higher cost of making diethanolamine, the main raw material for producing glyphosate with IDA technology.
    * Ten percent glyphosate aqueous solution will finally be removed from the market this year. Previously, glyphosate producers made such solution by using waste liquid from the production process, and they sold it. But as of 2012, they have to dispose of the waste liquid, for which the cost of glyphosate technical powder will be up RMB1 500 - RMB2 000/t. It is reported that for Zhejiang Wynca Chemical Group Co., Ltd., the material cost of glyphosate using glycine method will increase from RMB20 000/t to RMB23 000/t in 2012, while the product will be sold only at about RMB24 000/t.
    * Most pesticide producers will suffer losses due to high costs. The domestic costs of environmental protection, energy, labor, logistics etc. continue to rise.

3. Declining Investment and Fewer Construction Projects

    * This year, both investment and construction activity will decline in the industry, and the disorderly development trend of the industry will be brought within new limits. The reasons are as follows:
    1> Enterprise working capital will be tight due to the positive fiscal policy that the State has taken for 2012, and a moderately tight monetary policy is to be adopted meanwhile.
    2> Under great pressure from the State to save energy, reduce emissions and protect the environment, many companies have no choice but reduce or end their production of polluting and toxic pesticides.
    3> Food safety and urbanization will develop more quickly than before, which significantly heats up demand for high-effect, low-toxin and low-residue insecticides, fungicides and herbicides. However, at the same time this trend weakens the competitiveness of some common products.
    * In previous years, the capacity to make some pesticides has been expanded too quickly. Therefore, some mainstream products such as glyphosate, paraquat, avermectins and cyhalothrin are oversupplied, leading to a sagging market where the profit margin of some products is even lower than 2%. Consequently, insiders expect a drop in the output of chlorpyrifos, imidacloprid, carbendazim, acetochlor etc.

4. Domestic Market Impacted by Imports; Export Volume up but Price down

    * Recently, imported pesticides have taken a greater market share each year.
    * In 2012, multinationals-made pesticide will account for over 30% in China's rice insecticide market, according to statistics. It is predicted by experts that in the year of 2012 and in China's market, DuPont will sell approximately 600 tons of rynaxypyr, Syngenta will sell about 300 tons of virtako, Canadian Rotam will sell over 200 tons of flubendiamide, and Bayer will sell more than 500 tons of flubendiamide and avermectin. In addition, sales volume of Syngenta's Armure (15% propiconazole + 15% difenoconazole) will increase 20% from a year earlier.
    * Imported amount of pesticides has been growing around 10% each year. Benefiting from the patent and distribution channel, the market share of multinational-made pesticides in China is up 10% - 20% annually.
    * Compared with domestic brands of the same kind, imported pesticides cost consumers 30% - 50% more and their prices will generally grow 5% - 15% in 2012.
    * Exports of China-made pesticides will also increase in 2012 for the following three reasons:
    1> Expansion of planting areas in US, Brazil, Australia etc. requires more herbicides and fungicides from China.
    2> In Southeast Asian countries, grain is selling for increased prices, which promotes farming. China's pesticides are popular among farmers there.
    3> Rising crude oil prices will push the cost of pesticide raw materials to a higher level, causing foreign pesticide enterprises to cut production dramatically, which opens the market to Chinese exports.
    * Products are exported at lower prices than 2011 due to the following:
    1> The economic downturn and sluggish demand forced China's export companies to cut prices.
    2> Objectively, continuous RMB appreciation and the reduction or cancellation of export rebates make the export business more difficult, dragging the export price down further.
    3> Severe competition among export enterpri