Glyphosate Looks Promising Despite Drastic Fluctuations in 2013

By Zhang Weinong

Glyphosate is the star product of China’s pesticide market. In 2013, although China’s chemical industry was in the doldrums overall, its pesticide industry grew rapidly, partly due to the strong market performance of glyphosate. However, the prices of glyphosate fluctuated dramatically in 2013, and industry insiders are wondering about the future market performance of glyphosate. The price of glyphosate technical material (active ingredient) may become a focus of attention in China’s pesticide industry in 2014. A rational analysis of the market is needed now, in spite of the existing enthusiasm toward glyphosate.

I. Glyphosate prices took a roller coaster ride in 2013

Just like the price fluctuation in 2008, that in 2013 was caused by insufficient supply. In Q1 2013, enterprises in China had a low operating rate due to the stringent environmental regulations. Meanwhile, the planting acreage of soybean and corn in the United States, Ukraine and South American increased, leading to a shortage of glyphosate and a price hike from RMB32 800/t at the beginning of 2013 to 38 000/t in May, an increase of 15%. From the end of May, some small-scale producers were forced to stop production due to environmental regulations. As a consequence, the average operating rate of Chinese producers decreased, intensifying the shortage, and the price of glyphosate technical material increased to RMB40 000/t. In June and July, more enterprises in Zhejiang, Jiangsu, Shandong and Hunan were forced to stop production due to environmental regulations. The domestic output in June and July decreased 14% and 15% year-on-year, respectively. The glyphosate price climbed to RMB42 000/t. Due to the increase of planting acreage in Latin American, the demand for glyphosate increased. In particular, the demand from Brazil increased 15 – 20kt compared with the previous year. Foreign traders put the purchase date two months in advance to ensure the glyphosate supply in planting season. In August, except for several large producers operated under full load, operating rates of SMEs were between 50% and 60%. The shortage in supply was intensified and the price reached RMB45 000/t.
Normally, September is a brisk season for glyphosate. However, last year, the glyphosate price showed its first decrease in three months on September 24. In October, the price fell to RMB36 000/t. This price fall in a traditionally brisk season was partly caused by an overstock in harbors of Argentina that was due to the country’s tightening import procedures.
Starting from November, the price began to plummet. In mid-December, it decreased to RMB28 000/t. Since it was off season, the transactions were relatively fewer. It is believed that the high price in August was unreasonable, and the price in 2014 will return to a more reasonable level.

II. Price falling was mainly due to capacity expansion

Glyphosate accounts for over 20% of the total export value of pesticides from China. At a price of RMB38 000/t, the profit margin of glyphosate producers is about RMB12 000/t. Many enterprises are planning to expand their capacities due to the enticing profit margin, and many SMEs resumed production. The number of enterprises that conducted stable production of glyphosate in 2013 was 28, while the figure was only 12 at the beginning of 2012.
According to statistics, the total capacity for glyphosate in China has already exceeded 1 million t/a, and the output in 2013 was only 450kt. In 2014, the domestic capacity will increase about 100kt/a and the output of glyphosate technical material will exceed 500kt. Including the output of Monsanto’s all six production bases worldwide, the total output of glyphosate technical material in the world will reach about 700kt in 2014. Meanwhile, the consumption within and outside China are 50kt and 500 - 550kt, respectively, showing an obvious oversupply. Li Xiaoni, deputy director of China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters, said that although the export price of glyphosate increased from US$4 562/t to US$5 390/t in the first half of 2013, the profits of producers may not see sharp increase in the future due to the capacity expansion.
The Chinese government has issued a series of polices to phase out obsolete glyphosate production units and promote clean production processes. In the future, through adjusting structure and industrial upgrades, China’s glyphosate industry will become greener, with improved energy conservation and waste disposal.

III. Price may continue to increase in 2014

1. The price increase in raw materials will promote climbing glyphosate prices
As we all know, the shortage of key raw materials will push glyphosate prices upward and tighten the market supply. Currently, there are about fifty glyphosate technical material producers in China. Most old units use a glycine process, while most new units use IDA (iminodiacetic acid) route. IDA is made from iminodiacetonitrile or diethanolamine. At present, the price hike of these raw materials in China has brought cost pressure to glyphosate producers. To achieve energy conservation and emission reduction, the production of glycine has been restricted in China. The prices of glycine and diethanolamine have both been significantly elevated by the supply shortage of natural gas in China. A recent increase in electricity power has stimulated a price increase of yellow phosphorous, a raw material of glyphosate. All the above factors will lead to the increase of the production cost of glyphosate.
In recent years, the Chinese government intensified environmental inspections on chemical and pesticide producers. Some enterprises that failed to meet standards were forced to shut down. Some other enterprises have very low operating rates due to the rising production costs. It is estimated that in the first half of 2014, glyphosate prices will increase, but the profit margin of Chinese producers will not be sound, due to the increased production costs.
2. The global demand for glyphosate will continue to increase in 2014.
Due to the rapid development of biofuels, the agricultural acreage of genetically modified (GM) crops has increased significantly in recent years. With the popularization of GM crops and recovery of the global economy, the demand for glyphosate goes steadily up. In 2013, the planting acreage of GM crops reached 170.3 million hectares, up 6.4% year-on-year. While in 1996, the figure was only 1% of that in 2013, 1.7 million hectares. In spite of the fluctuation in price and market conditions, the consumption of glyphosate has kept growing fast. In 2013, the global consumption of glyphosate formulations was 940kt, and the growth rate was directly related to the growth rate of the planting acreage of herbicide-resistant GM crops. It is estimated that the consumption of glyphosate will increase about 10% in 2014 from the figure in 2013. Considering the output of glyphosate in China was 450kt in 2013, the global market can accommodate about 70 – 100 kt/a of new Chinese capacity in 2014.
In 2014, due to the rising oil prices and grain restocking in many countries, the agriculture acreage in the world will increase, promoting the consumption of pesticides. Reportedly, the planting acreages of soybean, corn and cotton in Latin American will increase in 2014, and the demand for glyphosate will therefore increase. Considering the low inventory level of Chinese glyphosate producers, the supply will become tight with the coming of the brisk season. Along with the constantly climbing production costs, the market price of glyphosate is expected to increase in 2014.
3. Environmental scrutiny may benefit the development of the industry.
Chinese central and local governments have given great emphasis to the environmental concerns related to pesticide production. From 2013 to 2015, the Ministry of Environmental Protection of China will implement comprehensive environmental scrutiny of all pesticide producers in China, and enterprises that cannot meet the requirements will be forced to cut back or even stop production. If some SMEs were to be forced to shut down, the supply and pricing influence of glyphosate will rely more on large-scale enterprises, promoting healthy development of China’s glyphosate industry.