Shi Xuxu, Xu Shuxian
The compound fertilizer industry kept evolving in 2020, and consequently, the capacity achieved positive growth, reversing the four straight years’ negative growth. Major compound fertilizer producers saw recovery growth in their output after three years of sharp declines.
About 3 Million Tons of New Capacities Put into the Market
The pace of restructuring in the compound fertilizer industry is being accelerated as the rigid environmental protection and safety supervision has been a norm under the guidance of the national supply side structural reform. As a result, a big number of laggard capacities were driven out of the market. The number of registered compound fertilizer enterprises was reduced from more than 5 000 in 2014 to about 3 000 in 2019, and the capacity decreased from about 200 million tons to 150 million tons. Year 2020 saw about 3 million tons of increased compound fertilizer capacities, most of which were expansion projects at existing plants in Northeast China.
According to the current regional distribution of capacities, Hubei, Shandong, Henan, Jiangsu and Anhui are still the main producing areas of compound fertilizer in China. Compared with the same period last year, the proportion of capacities in Hubei has increased, while that in Shandong and Jiangsu has decreased. With the release of new capacities, the proportion in Northeast China will increase slightly. In addition, the industrial concentration has increased. Among the 50 major compound fertilizer producers, the aggregated output of 11 producers with output over 1 million tons accounted for 61.48% of the total, up by 3.81% compared with 2016, and six out of them reported their capacities more than 1.5 million tons.
The capacities of compound fertilizer are still surplus, and most producers manage the inventory of finished products by setting production based on sales. However, with more and more intensive industrial competition and the reinforced harnessing in the Yangtze River Basin and Taihu Lake Basin, more laggard capacities will be driven out of the market, and more producers will face M & A as well as transformation and upgrading, so the total capacities will keep changing.
Downstream Demand Likely to Grow
The planting area of crops declined rapidly from 2016 to 2018 due to the adjustment in planting structure and low grain prices. In 2018, the total sown areas of grain in China was 165 902 380 hectares, a decrease of 1 036 660 hectares compared with 2016. The total sown areas of grain stabilized in 2019, guided by the government’s policy of "ensuring national food security and effective supply of important agricultural products". The Ministry of Agriculture and Rural Affairs of the PRC issued seven measures to ensure the production of agricultural products and stabilize the output of agricultural products. In addition, the government increased agricultural subsidies to constantly stimulate farmers’ planting enthusiasm. In 2020, China's sown areas of grain stopped decreasing and rallied to 116 768 000 hectares (1.75 152 billion mu), an increase of 704 000 hectares (1 056 million mu) or 0.6% over 2019.
The government requires the sown areas of grain to be stable at more than 1.75 billion mu in 2021 so as to largely fulfil self-supply of grain and ensure the absolute security of grain ration. The planting quantity of crops will inevitably increase in the future and thus the demand for compound fertilizer is expected to increase.
The consumption of fertilizer decreased sharply in previous years, as low prices of agricultural products and high cost of planting frustrated farmers. In 2020, the prices of major agricultural products in China rose on a broad basis, especially the prices corn and soybean, which increased by more than 20%. In addition, the number of large-sized farmers and new-type farmers was increasing in line with land transfer, which also enhanced profits for the planting of agricultural products.
Increasing Exports Year by Year
The average annual growth rate was at 46% during 2016-2020. The export volume exceeded 1 million tons in 2018 and 2 million tons in 2019. As the added value of agriculture is increasing in countries related to China’s "the Belt and Road" policy and Southeast Asia, indicating huge demand for fertilizer and other agricultural products in these regions and thus export volume of Chinese compound fertilizer will continue to grow.
China mainly exported binary fertilizer before 2018, but after the implementation of zero tariff policy for ternary compound fertilizer export, the export volume of ternary compound fertilizer grew explosively and exceeded that of binary compound fertilizer in 2020. The export volume of ternary compound fertilizer is expected to keep rising with the rise of international food prices.
Ternary compound fertilizer is the major imported grade, which is mainly applied in economic crop areas, with an annual import volume of 1-1.5 million tons. The domestic production has increased in the past two years in line with the development of local technologies, so the dependency on imports has decreased.
The compound fertilizer market saw new changes and breakthroughs in terms of supply and demand in 2020. Under the guidance of the national policies, both the concept of farmers’ scientific fertilization and technologies of fertilization are improving, and thus the compound rate of fertilizer is increasing year by year, ushering in new development opportunities.
