By Li Dandan, China National Chemical Information Center

Despite an overall stability between supply and demand in the first half of 2020, domestic fertilizer industry was actually affected by the coronavirus in many aspects (e.g. production, sales, foreign trade, profits and prices), and will face severe challenges in H2 given more unstable factors, downward pressure on the global economy, production restriction in autumn and winter, etc.

Output was down

Domestic fertilizer output was down 6.4% YoY to 28.04 million tons in the first half of 2020. In detail, output of nitrogen fertilizers fell 0.4% YoY to 18.32 million tons, and that of potash fertilizers reached 3.6 million tons, up 1.9% YoY. Phosphate fertilizer output was 7.83 million tons, down 22.7% YoY, a larger decline attributable to the covid-19 forcing producers in Hubei, accounting for half of domestic phosphate fertilizer capacity, to suspend or reduce production.

Import and export both decreased due to the coronavirus

In the first half of 2020, China imported 4.87 million tons (down 26% YoY) of fertilizers, and exported 11.94 million tons, down 5.3% YoY. Export value declined 24.5% YoY to US$2.65 billion.
More specifically, import volume of potassium chloride fell 30% YoY to 3.78 million tons in H1, and that of NPK compound fertilizers went down 9.4% YoY to 720 kt. Export volume of urea was down 2.6% YoY to 1.72 million tons, while that of ammonium chloride soared 35% YoY to 540 kt, and that of ammonium sulfate rose 8.6% YoY to 3.58 million tons. The outbreak of the coronavirus decreased diammonium phosphate (DAP) supply, which mainly satisfied domestic demand. Hence, DAP export volume was greatly dragged down, tumbling 26.1% YoY to 2.03 million tons in H1.

Consumption showed a downward trend

In the first five months of 2020, China’s apparent fertilizer consumption decreased 8.3% YoY to 21.95 million tons. Apparent consumption of phosphate fertilizers was down 27% YoY to 3.78 million tons, and that of potash fertilizers down 15.4% YoY to 4.75 million tons, but because of the nation’s more attention on grain production nitrogen fertilizer consumption grew 1.6% YoY to 13.37 million tons.

Industry profits decreased

In the first half of 2020, operating revenue of fertilizer enterprises above designated size reached RMB278.44 billion, down 10.1% YoY, and total profits fell 23.8% YoY to RMB11.54 billion. By quarters, profits dropped 52.9% YoY in Q1 owing to the coronavirus, started to rebound in March and declined 5.5% YoY in Q2.

Prices were low

Urea
Increasing urea output and declining prices of raw material coal decreased urea prices by around RMB200/t YoY to RMB1 600-1 800/t in H1 (see Figure 1 for details).

Figure 1  Ex-factory prices of urea from 2017 to H1 2020

Ammonium phosphate
Compared with same periods in the past two years, phosphate fertilizer prices were down in the first half of 2020. At the beginning of the year, supply was tight as the coronavirus decreased operating rates in Hubei (below 40%), Yunnan and Guizhou. This made prices increase. In March, enterprises gradually resumed production, hence output surge and price decrease. Mainstream ex-factory price of 55% powdery monoammonium phosphate fell to RMB1 800/t, and that of 64% diammonium phosphate was lower than RMB2 200/t, both in early June.
Potassium chloride
Domestic port prices of potassium chloride were stable in Q1, basically the same as prices at the end of 2019. On April 30, China and Belarus signed a big contract on potash fertilizers, with a contract price of US$220/t (CFR), down US$70/t from 2018.
Larger decrease of big contract prices could be attributed to: 1) global glut of potash fertilizers; 2) international prices falling further as some producers sold goods at low prices to recoup funds; 3) shrinking global demand.
Domestic port prices of potash fertilizers have plummeted since May, dropping from RMB2 100/t at the beginning of 2020 to around RMB1 700/t as a large quantity of products from bonded areas entered the market after big contracts were signed (see Figure 2 for details). Stockpiles at domestic ports were around 3.5 million tons at the end of this June, and new supply of goods will arrive later.

Figure 2  Port prices of potassium chloride from 2018 to H1 2020

Forecast

Urea prices may decrease as demand from the agriculture entered off season, industrial consumers purchased based on actual needs but output showed no big difference. Prices of diammonium phosphate may be stimulated by international demand rebounded since end of June. Increasing demand for compound fertilizers consumed more monoammonium phosphate (MAP). Hence, MAP prices are forecast to grow. Potassium chloride prices may decline continually given abundant supply and less demand in autumn, but prices of phosphate fertilizers are expected to grow in a short term. Overall, supply pressure of fertilizers will not be big in H2, and prices are forecast to be low continually.