The fertilizer market in 2017 will exhibit five key characteristics

Thread Content

The fertilizer market in 2017 is expected to exhibit five key characteristics. Author/Source: Agri-Materials News. Date: 2017-01-11. Clicks: 30. At the end of 2016, the fertilizer market showed signs of recovery, with prices for products such as urea rising significantly, which led many to be optimistic about the market trend in 2017. However, some experts believe that 2017 will be a year of recovery for the fertilizer market. It is expected that market conditions in 2017 will be better than those in 2016, with no more such extreme downturns as were seen in 2016. Supported by these costs, fertilizer prices are expected to rise by 100–400 yuan per ton in 2017 compared to 2016; however, the market is still going through a difficult process of capacity reduction, and the overall market condition remains weak. The market will exhibit five key characteristics. 　　I. Production has declined. 　　Data shows that China’s total capacity for fertilizer production has reached 131.67 million tons, with production amounts to 80.11 million tons, while demand is only 66.10 million tons. As a result, there is an excess of 14.01 million tons, representing nearly 50% excess capacity. In 2017, the problem of overcapacity in nitrogen and phosphorus fertilizer production remained prominent, while potassium fertilizer production capacity was set to increase further. Larger potassium fertilizer manufacturers still have plans to expand production by 2018, thanks to their advantages in resources and technology. Among them, Yanhu Co., Ltd. plans to increase its production capacity to 6 million tons, Zangge Potash plans to raise it to 2 million tons, and Luoke Potash plans to increase it to 1.8 million tons. It is estimated that the new potassium fertilizer production capacity in 2017 will be around 700,000 tons, while the capacity of potassium fertilizer production that will cease operation will be only about 200,000 tons. 　　The production capacity of nitrogen and phosphorus fertilizers far exceeds market demand; only by reducing operating rates can supply and demand be roughly balanced ； Given that fertilizer prices are unlikely to be very high in 2017, many nitrogen and phosphate fertilizer manufacturers will continue to operate at a loss, and some smaller potassium fertilizer producers will also suffer losses; as a result, fertilizer production is expected to decline to some extent in 2017. 　　II. Demand is declining moderately. 　　The agricultural sowing area is expected to decline in 2017. First, industries such as manufacturing, railways, highways, and real estate have developed rapidly, occupying some arable land ； Secondly, agricultural product prices are low, which reduces farmers’ enthusiasm for planting; in some areas, land abandonment is a significant problem, and the basis for increasing fertilizer use by expanding planting areas no longer exists. With the implementation of the **zero-growth strategy for chemical fertilizers, the widespread adoption of soil-test-based fertilization, and changes in fertilization methods, a reduction in the total amount of fertilizer used is an inevitable trend. Due to the promotion of slow- and controlled-release fertilizers, in regions such as North China and East China, the practice of applying fertilizers three times a year to field crops – for wheat top-dressing, corn fertilization, and wheat base fertilization – has been changed to two applications per year (corn fertilization and wheat base fertilization), resulting in a steady decline in the demand for chemical fertilizers. Looking at specific fertilizers, the reduction in nitrogen fertilizer usage is more noticeable, while potassium fertilizer usage may increase in southern regions. 　　III. Exports are not optimistic. 　　In 2017, there were favorable conditions regarding fertilizer tariffs: zero tariffs applied to nitrogen and phosphate fertilizers, while only potassium fertilizers and potassium-containing compound fertilizers continued to be subject to export tariffs. As a result, the overall export tax rate decreased significantly. Due to the weakened international competitiveness of Chinese fertilizers, coupled with the increase in new production capacity for fertilizers abroad, fertilizer exports in 2017 are not promising, with export volumes likely to drop by more than 10% compared to 2016. 　　With the cancellation of preferential policies for fertilizers, China’s disadvantage of high export costs for fertilizers has become even more apparent. Industry experts say that although China has a large capacity for urea production, at current international market prices, a significant portion of this capacity cannot be viable. In the future global nitrogen fertilizer landscape, production costs will determine export capabilities. As new nitrogen fertilizer production capacity is added, the United States will shift from being a urea importer to a urea exporter or a country that can meet its own needs. Africa will become an emerging urea exporter, while exporters in the Middle East are focusing on the markets in East and West Africa. China’s urea exports will face competition from urea produced in the Middle East and West Africa. Phosphatic ammonium exports will also be affected by products from low-cost regions such as the Middle East. 　　IV. Rising costs drive up prices. 　　Rising production costs were the main factor driving up fertilizer prices in 2017, with prices expected to increase by 100–400 yuan compared to 2016. The estimated price range for fertilizers at the factory level in 2017 is as follows: urea at 1300–1650 yuan, monoammonium phosphate at 1700–2100 yuan, diammonium phosphate at 1900–2400 yuan, potassium chloride at 1800–2200 yuan, and potassium sulfate at 2100–2500 yuan. 　　The main factors driving up the price of nitrogen fertilizers are coal prices and electricity prices. In 2016, the price index for thermal coal in the Bohai Sea region was as low as 370 yuan; it is expected to be above 500 yuan in 2017, representing an average increase of around 200 yuan compared to 2016. As of April 20, 2016, all preferential electricity rates for fertilizer production were abolished. In 2016, there were nearly 4 months of low electricity prices, while in 2017 electricity prices remained high throughout the year; the average electricity price increased by about 3% compared to the previous year, leading to higher production costs for nitrogen fertilizers. 　　The main raw materials for phosphate fertilizers are phosphate rock, sulfur, and liquid ammonia. Since September 2016, the mainstream price of sulfur at Yangtze River ports has risen from 740 yuan to 900 yuan, an increase of 21.62%. The price of liquid ammonia has also continued to rise; in Hubei, the price of liquid ammonia increased from 2,050 yuan at the beginning of October 2016 to 2,700 yuan by the end of the year, a rise of 31.71%. In Yunnan, the price of synthetic ammonia has reached over 3,300 yuan. In 2017, the prices of phosphate fertilizer raw materials will not be very low, which will drive up the prices of monoammonium phosphate and diammonium phosphate. 　　The production cost of potassium fertilizers is also rising. On the one hand, rising labor costs, increased resource taxes, and other factors lead to higher extraction costs ； On the other hand, potassium fertilizer production is concentrated in Qinghai and Xinjiang, resulting in long transportation distances; moreover, there has always been a shortage of freight cars in the northwest region. With the cancellation or reduction of preferential policies for railway freight transport, the shipping costs for some companies to send goods to the interior areas have increased by more than 100 yuan compared to the period when such preferences existed. 　　V. Environmental factors have a significant impact on the market. 　　With increased efforts in environmental protection, environmental factors will become an important factor influencing the fertilizer market in 2017, representing the greatest impact on this market in recent years. Rising environmental standards and increased supervision raise production costs on one hand, and affect the operating capacity of enterprises on the other, impacting fertilizer production and thus the market supply and demand balance. (Zhou Heping)