Growing Export Volume Boosted Fertilizer Production in 2015

By Chen Li, China National Chemical Information Centre

China produced a glut of chemical fertilizers in 2015. Domestic demand increased, but slowly. Market prices fluctuated considerably, and M&As accelerated. Export policies for chemical fertilizers were quite relaxed. Demand in the international market was robust, and export growth boosted the output of chemical fertilizers, which reached 62.862 million tons during January-October 2015, up 6.8% over the same period of the previous year. The output of nitrogen fertilizers was 40.776 million tons, an increase of 5.4%. The output of phosphate fertilizers was 16.685 million tons, an increase of 12.6%. The output of potash fertilizers was 5.020 million tons, an increase of 5.9%.
Export tariff policies for chemical fertilizers were further relaxed in 2015: seasonal differences were eliminated, and the tariff rate was reduced remarkably. The export volume increased, reaching 28.13 million tons (physical goods) during January-October 2015, an increase of 28.1% over the same period of the previous year, according to statistics from the General Administration of Customs. The export volume of ammonium phosphate, ammonium chloride, ammonium sulfate and other superphosphates increased drastically over the same period of the previous year. See Table 1 for details.
The major chemical fertilizer variety for import to China was still potassium chloride in 2015. The import volume of potassium chloride was 7.05 million tons during January-October 2015, an increase of 9.3% over the same period of the previous year. Major import sources included Russia, Belarus, Israel, Canada and Jordan. NPK import to China also grew considerably in that period, and the import volume was 1.29 million tons, an increase of 34.7%. The export volume of NPK dropped 13.9% in that period. This shows that the demand for high-grade NPK compound fertilizers in China is brisk.

Demand for chemical fertilizers in agriculture was stable, demand in industry increased

The total grain output in China increased further in 2015, and fertilizers played an essential role in the increase. Great efforts were made to promote formula fertilization with soil testing, otherwise adjust fertilization patterns and change fertilization methods, and highlight organic/inorganic fertilizer combinations. Fertilizer utilization efficiency was therefore enhanced, and some progress was seen in inhibiting the growth of demand for chemical fertilizers. The demand for chemical fertilizers in agriculture was therefore basically stable.
As China began to exercise strict control on air pollution and smog to protect the environment, the demand for nitrogen fertilizers in industry increased. Industrial denitration and vehicle-use urea became new bright spots in the industrial demand. The growth of demand in these two sectors was estimated to be 8-10% in 2015. Owing to the development of other industrial sectors, the demand for industrial ammonium nitrate, industrial ammonium phosphate and industrial potash salts also increased.

Prices of chemical fertilizers changed unpredictably

The chemical fertilizer market in China in 2015 was better overall than in 2014.
We consider urea to show the market trend of nitrogen fertilizers. Urea prices in 2015 first went up and then came down. They were stable at the beginning of the year and increased a bit from around RMB1 600/t in January to RMB1 720/t in mid-July. The market had been slack in 2014, operating rates were low, and inventories were down. As policies for export were relaxed in 2015 and the export volume increased, prices rose. The price of urea fell to the bottom in the second half of the year, reaching RMB1 400/t in December. With the improvement of the market, the operating rates picked up and output increased rapidly. Domestic demand stayed slack, the prices of raw materials made a downturn and urea prices slid, but slowly.
The market trend of phosphate fertilizers was basically stable before October but started to decline at the end of the year. Take DAP for instance. DAP prices stayed high, around RMB2 720/t during January-October. They started to come down in late October and were only around RMB2 550/t in December, because of: 1) the backing of raw materials prices and the price of sulfur, in particular, was high and stable in the first half of the year. 2) the backing from international demand. As export tariff policies were relaxed, many phosphate fertilizer producers in China turned their eyes to the international market. A rise of phosphate fertilizer prices in the international market supported the domestic market. The international market was saturated after October, the domestic demand also entered a slack season and the price of phosphate fertilizers started to come down.
Potassium chloride is taken for an example to show the market trend of potash fertilizers. The price of potassium chloride in the domestic market was determined by the price trend in the international market. The market for potash fertilizers in 2015 declined at first but recovered later. In the three quarters, the market continued the trend of the fourth quarter of 2014: prices were around RMB2 100/t till September. With rising prices in the international market, the price of potassium chloride increased to around RMB2 400/t at the end of November. It fell to RMB2 300/t in December.
Owing to the implementation of the policy for formula fertilization by soil testing, the compounding rate of chemical fertilizers reached 35% in 2015. The price of compound fertilizers increased slowly.

2015 policies for macro control of the chemical fertilizer industry will guide its development

Gradual elimination of preferential policies: Starting from February 1, 2015 the freight rate for chemical fertilizers for agricultural use was increased. Starting from April 1, 2015 the price of natural gas for chemical fertilizer production was increased and the favor margin was reduced. Since April 20, 2015, preferred prices of power for chemical fertilizer production were gradually eliminated. Total elimination will be achieved on April 20, 2016 and the power cost will therefore be higher. Starting from September 1, 13% value-added tax was once again levied on chemical fertilizers, and in the transition period to May 31, 2016, 3% value-added tax will be levied. The elimination of these favorable policies will greatly increase the cost of chemical fertilizers.
Zero demand growth of chemical fertilizers: In February 2015 the Ministry of Agriculture issued the “Action Plan for Zero Growth in the Application of Chemical Fertilizers to 2020”. Centralized arrangements for establishing scientific fertilization administration and technology systems, further optimizing China’s fertilization structure, improving fertilization methods and steadily enhancing fertilizer utilization efficiency were made.
Transformation and upgrading the chemical fertilizer industry: In July, 2015 the Ministry of Industry and Information Technology issued the “Guiding Opinions on Promoting the Transformation and Development of the Chemical Fertilizer Industry”. Guiding opinions on chemical fertilizer total volume control, raw material structure readjustment, product structure upgrading, energy saving and environmental protection and resources comprehensive utilization were defined and the future development orientation of the chemical fertilizer industry was proposed. The “Conditions for Admission to the Ammonium Phosphate Sector” and the “Conditions for Admission to the Ammonia Sector” were issued at the same time. The purpose was to accelerate industrial structure adjustment, strengthen environmental protection, improve resource comprehensive utilization, standardize investment behaviors, inhibit the surplus of nitrogen fertilizer capacity and phosphate fertilizer capacity, and promote sound development of the chemical fertilizer industry.


Table 1  Export of major fertilizers from China, January-October 2015

Variety    Export volume (kt)    YoY Growth
(%)
Urea    10 490    8.8
Ammonium sulfate    4 150    25.8
Ammonium nitrate    262    -23.8
Fertilizer-grade ammonium chloride    782    89.7
Triple superphosphate    754    1.1
Other superphosphates    828    26.8
DAP    6 390    81.9
MAP    2 250    36.0
NPK    54    -13.9
NP    741    14.9
Others    1 429    24.7
Total    28 130    28.1


Prospects for 2016

Domestic demand for chemical fertilizers will remain stable in 2016. Oversupply will still be prominent. As policies for export are quite relaxed, export can ease oversupply. To totally overcome the glut, however, chemical fertilizer producers are requested to save energy and reduce emissions, adjust product structure and improve services. It is expected that the chemical fertilizer industry will see M&A, reform and general turbulence this year.
Overcapacity for chemical, nitrogen and phosphate fertilizers will continue to be a problem in China. Competition in the base fertilizers market will still be fierce.
No export policy change is expected for chemical fertilizers in 2016. Against the domestic market’s background of steady demand, abundant supply and low prices, the export volume of chemical fertilizers will remain relatively high.
Quite a few large chemical fertilizer producers already started e-commerce in 2015. The upsurge of e-commerce will continue in 2016. In addition to chemical fertilizer producers, other e-commerce giants place high hopes on the market for agricultural means. Many cases of cooperation and acquisitions – such as inside strong-strong alliance, inter-industry integration and cross-border cooperation – already appeared in this market in 2015. Integration will therefore be prominent in the industry in 2016.