By Li Dandan, China National Chemical Information Center

China's fertilizer supply and demand both decreased in 2020

China's fertilizer production totaled 53.958 million tons (convert into purification), a year-on-year decrease of 0.9% in 2020. Among them, the output of nitrogen fertilizer was 36.79 million tons, a year-on-year increase of 2.7%; the output of phosphate fertilizer was 10.046 million tons, a year-on-year decrease of 6.9%; the output of potash fertilizer was 7.108 million tons, a year-on-year decrease of 7.0%. The total output of chemical fertilizers continued to decline, a decrease of 23% from the 70.05 million tons (convert into purification) in 2016, and the average annual decline in the past five years reached 6%. With the overcapacity of nitrogen and phosphate fertilizers, the overall supply is gradually decreasing under the guidance of the supply-side structural adjustment policy; while the self-sufficiency rate of potash fertilizer in China is around 50%, the domestic supply has increased in the past five years, and the self-sufficiency rate has increased.
   The overall operating rate of the nitrogen fertilizer industry in 2020 was higher than previous years and the output has increased. The phosphate fertilizer industry was affected by the COVID-19 epidemic, and the overall operating rate of the industry in the first three quarters was lower than the same period in previous years. In addition, the "three phosphorus" remediation continues, resulting in a decrease in the output of phosphate fertilizer. The potash fertilizer production shrunk as well. China's potassium chloride imports increased significantly in 2019, with a year-on-year increase of 23%, reaching a total of more than 9 million tons. The large accumulated market inventory resulted in decreased enterprise production.
   China's apparent fertilizer consumption was 48.357 million tons (convert into purification) in 2020, a year-on-year decrease of 1.8%. In addition to the 1.4% increase in nitrogen fertilizer, the apparent consumption of phosphate fertilizer and potash fertilizer both declined, with a decrease of 6.3% and 5.7% respectively. The decline in apparent consumption is due to the decrease in fertilizer imports and the increase in exports; on the other hand, after 2015, the Ministry of Agriculture and Rural Affairs proposed zero growth in the use of chemical fertilizers, and therefore the demand has declined year by year. The average annual decline in the past five years is basically the same as the output, reached 6%. The changes in China's fertilizer production and consumption from 2016 to 2020 are shown in Figure 1 and Table 1.

Figure 1 China's fertilizer production and consumption in 2016- 2020

   In 2020, China's fertilizer imports decreased by 3.2% year-on-year to 5.793 million tons (convert into purification); exports increased by 1.8% to 11.394 million tons (convert into purification). Nitrogen fertilizer imports fell the most, reaching 23.9%; phosphate fertilizers increased by 12.4%; potash fertilizer imports reached a high level in 2019, and imports in 2020 decreased by 2.7% year-on-year. In terms of exports, phosphate fertilizers fell the most, reaching 6.8%; while nitrogen fertilizer exports increased by 7.9%; potash fertilizer exports increased by 9.4%. The distribution of supply and demand of various fertilizer varieties in China in 2020 is shown in Figure 2.

Figure 2 Distribution of supply and demand of various fertilizer varieties in China in 2020

   From the perspective of corporate benefits, the profits of the nitrogen fertilizer industry have declined to a certain extent, and the profits of the phosphate compound fertilizer and potash fertilizer industries have rebounded. The 20 listed fertilizer companies achieved a total profit of RMB4.45 billion in the first three quarters of 2020, a year-on-year increase of 31.7%. Salt Lake Shares’profit in the first three quarters was RMB1.38 billion, a year-on-year increase of 374.4%; Yuntu Holdings made a profit of RMB370 million, a year-on-year increase of 102.28%; Batian Shares’profit was RMB44.892 million, an increase of 134.8%.

   Affected by factors such as the COVID-19 epidemic, falling raw material prices and lower international market prices, the prices of major fertilizer varieties in China in 2020 were overall lower than the same period in 2019. At the end of the year, the prices of urea, ammonium phosphate, and potassium chloride rose due to factors such as limited production of natural gas, increased environmental protection requirements, and rising food prices.
   Urea prices fluctuated around RMB1 700/t in the first three quarters. The decline in the price of material coal and the rebound in production led to the abundant supply of goods in the market and the weak price increase. After the National Day holiday, as the north China gradually entered the heating season, coal and natural gas prices rised one after another, the urea costs rised, operating rates fell, and prices stopped falling and started rebounding. The ex-factory price trend of urea is shown in Figure 3.

  Figure 3 The ex-factory prices of urea, 2018-2020

   The price of diammonium phosphate showed a trend of decline at first and rise later on, but it was generally at a low level in the past five years. In the first half of the year, except for the slight increase in prices due to the COVIC-19 epidemic during the spring plowing period, the prices trended downward in the remaining months. Starting from the second half of the year, the prices of raw material sulfur and synthetic ammonia have risen, driving the price of diammonium phosphate upward, which is basically the same as that of spring farming period. At the end of the year, the price remained steady with increasing trend, driven by the rebound in raw material prices and better exports. The mainstream ex-factory price trend of 64% diammonium phosphate is shown in Figure 4.

Figure 4 The mainstream ex-factory price of 64% diammonium phosphate in 2018-2020

   In the first half of 2020, the spring farming and fertilizer using period ushered in a wave ofprice rise. Afterwards stimulated by the reduction in demand and the signing of large potash fertilizer contracts, the ex-factory price fell. Starting from the second half of the year, the operating rate of downstream compound fertilizer plants has gradually increased, the strong demand for raw materials has pushed the price of potassium chloride to stop falling and rebound, and the price has risen slowly. The trend chart of potash fertilizer port price is shown in Figure 5.

Figure 5 Potash fertilizer port price, 2018-2020

The prosperity of the fertilizer industry is expected to improve

   At present, the fertilizer industry is gradually recovering from the haze of the COVIC-19 epidemic, and the prosperity is expected to further improve in 2021. The production and supply may be restored under the new production capacity and good market sentiment in 2021.
   The outbreak of the COVID-19 epidemic has further highlighted the importance of food security. Food prices have risen significantly, which will affect and stimulate to increase the demand for fertilizers this year. In addition, the Ministry of Agriculture and Rural Affairs clearly stated in the "Key Points of Planting Industry Work in 2021" that the rotation and fallow cultivation in 2021 will be based on rotation and fallow cultivation as a supplement. Therefore, the sown area of grain is expected to increase, which will drive the increase in the demand for fertilizers.
   The overall economic environment this year is better than last year. Oil price may increase, which will drive the price of bulk chemical products upward. Affected by unfavorable weather conditions this year, there are expectations for a reduction in grain production, which will boost grain prices. The coal demanding downstream industries such as thermal power generation, steel and cement production will maintain a growth trend, and coal demand will recover, and prices may rise, which will form a strong support for the prices of urea and phosphate fertilizers.