China’s Fertilizer Industry Faces Fierce Internal Competition

By Chen Li, CNCIC (China National Chemical Information Centre)

China’s fertilizer enterprises survived with great difficulty in 2014, when urea prices fluctuated slightly but were in the low range of recent years; phosphate fertilizer prices rose gradually, higher than in 2013; potash fertilizer prices fell at first and then rebounded. Overall, the domestic fertilizer supply still exceeded demand in 2014. Although export volume rose greatly, compared to 2013, fertilizer players can hardly avoid tough competition due to the anemic growth of demand.

Decreasing output

By November 2014, China’s basic fertilizer enterprises totaled 612, 331 of which are nitrogenous fertilizer producers capable of satisfying domestic demand and boasting relatively strong export ability; 223 firms are engaged in phosphate fertilizers, exporting some product after meeting domestic needs; the remaining 58 potash fertilizer manufacturers, supplemented by imports, meet domestic demand.
From January to November, China produced 64.01 million tons of fertilizers, down 0.09% YOY (nitrogenous fertilizers, 43.31 million tons, down 2.06% YOY; phosphate fertilizers, 15.12 million tons, up 1.81% YOY; potash fertilizers, 5.58 million tons, up 11.74% YOY). Domestic fertilizer output had been growing in the previous five years, but in 2014, it declined while total capacity kept growing. The decrease can be attributed to the fertilizer market sagging and to producers curbing production activities and lowering operating rates. Output is forecast to rebound with the government relaxing export policies for 2015, and with outdated production facilities gradually being abandoned.

Soaring export

The fact that supply exceeds demand requires more relaxed export policies. In 2014, China kept the established low- and peak-season tariff policy, but greatly lowered tax rates. The urea export tariff was reduced to RMB40/t during the whole year, and a 15% ad valorem tariff was charged in the peak seasons (from January to June, and November to December); monoammonium phosphate and diammonium phosphate, RMB50/t, a 15% ad valorem tariff in the peak seasons (January 1 to May 15, and October 16 to December 31); potassium chloride and potassium sulfate, RMB300/t; ammonium chloride, potassium nitrate, single and triple superphosphate, other phosphate fertilizers, phosphorus potassium mixed fertilizers, a 5% ad valorem tariff during all of 2014; unlisted nitrogenous fertilizers, RMB40/t, a 15% ad valorem tariff in the peak seasons (from January to June, and November to December); NPK compound fertilizers, a 30% ad valorem tariff during the whole year.
According to the General Administration of Customs, China exported 25.86 million tons of fertilizers from January to November 2014, surging 47.06% YOY, and imported 8.67 million tons, up 22.36% YOY.
Potassium chloride is the main fertilizer variety imported by China. In the first 11 months of 2014, China imported a combined 7.22 million tons of potassium chloride (up 33.24% YOY) from Russia (2.39 million tons), the Republic of Belarus (1.46 million tons), Israel (1.29 million tons), Canada (1.10 million tons), Jordan (565 400 tons) and Germany (183 300 tons).

Stable demand growth

China’s grain output grew 0.9% YOY to 607.10 million tons in 2014, when grain-sown areas reached 112.74 million hectares, up 0.7% from a year earlier. Domestic fertilizer demand kept growing modestly in 2014 because of policy support like higher minimum purchase prices of wheat and rice.
Industrial demand for nitrogenous fertilizers rose around 8%. At the end of 2014, the government issued national criteria on urea applied to treating car exhaust, helping the product maintain rapid growth in 2015.

Tougher competition

2014 was a hard year for China’s fertilizer industry, but different markets performed differently.
Nitrogenous fertilizer market. Take urea as an example. The prevailing price was around RMB1 700/t at the beginning of 2014 and then fell steadily. In March, the prevailing price was down, and it hit bottom at less than RMB1 500/t in mid May, but soon it rebounded, exceeding RMB1 500/t. After August, the level of RMB1 600/t was regained. In November, the price slid to around RMB20/t, due to weak demand, and failed to rebound at the end of 2014.
Phosphate fertilizer market. Compared to other fertilizers, performance of the phosphate fertilizer market was relatively stable. Monoammonium phosphate and diammonium phosphate performed similarly, both with prices rising slightly at the beginning year of 2014 and remaining almost unchanged for the next five months. The stability benefits from steady prices of raw materials (sulfur in particular), high demand for compound fertilizers, and rising international prices. After China loosened export tariffs in 2014, many domestic enterprises turned attention to the international market. Therefore, higher prices in the world phosphate fertilizer market greatly supported domestic enterprises.
Potash fertilizer market. Domestic potash fertilizer enterprises were greatly impacted by the international market, which continued to see low potash fertilizer prices at the beginning of 2014. Contract prices between Chinese suppliers and foreign buyers were down US$95/t YOY to US$305/t CFR in 2014. Facing fluctuations in the world market, the domestic supply structure of potash fertilizers was also changed. One million t/a capacity of Qinghai Salt Lake Potash Co., Ltd. was put into use. After expansion, SDIC Xinjiang Luobupo Potash Co., Ltd. increased its capacity to 1.6 million t/a, fully satisfying domestic demand and also boosting export volume, which went up 15% YOY by the end of November 2014. With regard to domestic prices, a rebound started in July 2014 after a half-year of stability.

Accelerated structure adjustment

Nitrogenous fertilizers. 1) Raw material adjustment. In 2014, China raised natural gas prices, exerting great pressure on urea enterprises. Those producers using natural gas as raw materials account for 30% of the nation’s urea capacity, more than 10% of which is believed to have been idled or permanently shut down. Furthermore, bituminous coal is becoming more likely to replace anthracite; 2) Enterprise scale has been expanding, with large units constructed and outdated facilities abandoned, improving company competitiveness; 3) Product structure adjustment. Due to fiercer competition and stricter environmental protection requirements, high-efficiency fertilizers (such as special fertilizers, slow/controlled release fertilizers, water soluble fertilizers and functional fertilizers) and environment-friendly fertilizers are being developed rapidly.
Phosphate fertilizers. As the situation was not favorable in recent two years, capacity expanded slowly. In 2014, China boasted around 17 million t/a of monoammonium phosphate capacity and 19.50 million t/a of diammonium phosphate capacity, both up modestly from a year earlier. A big change in the phosphate fertilizer market was the jump in exports, especially the surging export of monoammonium phosphate – up nearly 200% YOY.
Potash fertilizers. New capacity of two potash giants, Qinghai Salt Lake and Xinjiang Luobopo, not only increased their self-sufficiency rates, but also reduced import share from 58% in 2013 to below 50% in 2014. However, expansion did not stop. Qinghai Salt Lake raised RMB5.4 billion at the end of 2014 to add 1.5 million t/a potash fertilizer capacity by expanding. Capacity expansion is a decisive factor for product prices in China.

Table 1   Export of China’s fertilizers    (kt, %)

Varieties    Jan-Nov 2014?    Jan-Nov 2013?    YOY Growth
Fertilizers    25 859.6    ?17 584.1    47.06
Urea    11 982.1    7 512.8    59.49
Ammonium Sulfate    3 651.8    2 717.4    34.39
Ammonium Nitrate    381.0    409.7    ?-7.01
Ammonium Chloride    481.8    369.2    30.50
Triple Superphosphate    788.4    696.5    13.19
Other Superphosphate    ?665.9    586.7    13.50
Diammonium Phosphate    4 146.9    3 285.8    26.21
Monoammonium Phosphate    1 937.5    654.9    195.85
NPK Compound Fertilizers    68.9    44.2    55.88
NP Compound Fertilizers    746.1    552.4    35.07


Fast growth in new fertilizers

At present, the agricultural fertilizer market is characterized by high efficiency, high yield and environmental protection concerns, and competition is more intense owing to the similarity of products. Consequently, new high-efficiency fertilizers are becoming quite popular, occupying over 10% of the market. In 2013, domestic consumption of fertilizers reached around 130 million tons, and more than 20 million tons were new-type fertilizers like water soluble fertilizers, controlled release fertilizers and microbial fertilizers. However, new fertilizers should be developed reasonably as time is required to make technical progress, confirm yield-increase effects and test impacts on the environment.

2015 Prospects

China’s fertilizer demand is forecasted to be stable in 2015. Due to more relaxed export policies, export will be propelled and may alleviate the imbalance between supply and demand. But if enterprises want to fully get out of trouble, they have to pin their hopes on innovative products and better services. There were fewer domestic fertilizer firms in 2014 than in 2013, and the number is predicted to be down further in 2015.