Cutback by one-third in autumn – how to proceed with raw material procurement?

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Cutback by one-third in autumn – how to proceed with raw material procurement? Author/Source: China Fertilizer Network Date: 2019-08-12 Clicks: 2 The revenue generated by compound fertilizer companies from sales of autumn fertilizers has not been satisfactory recently. Although many companies have some orders pending fulfillment, the overall situation is not optimistic. It is reported that in the best-case scenario, demand for autumn fertilizers could decrease by one-third; some companies even face a greater reduction in demand. This shows that although the demand for autumn fertilizers exists, the market remains somewhat sluggish. Recently, some compound fertilizer manufacturers have gone to the Northeast region to collect payments for winter storage, much earlier than in previous years. It is understood that the collection of payments for winter storage in the Northeast this time was not as satisfactory as expected, although some funds were still collected. Industry experts speculate that the reason these companies went to the Northeast so early to collect payments is to alleviate their own pressures, which also indicates that demand from these companies in the autumn period was not very strong. In addition to the weak demand for compound fertilizers, the overall operating rate of such fertilizer production facilities has remained low recently. Fertilizer manufacturers in regions such as Shandong, Henan, and Hebei are operating at reduced capacity due to environmental and safety inspections; moreover, road construction in some areas has caused transportation difficulties, which has imposed constraints on the production and delivery of compound fertilizers. Although fertilizer companies do not have large inventories of finished products this year, they do have relatively high levels of raw material inventory, and the consumption rate of these raw materials is slow. The situation regarding raw material procurement is likely to remain unfavorable in the future. Urea: In recent days, urea prices have remained weak and stable, with further declines expected. Overall demand is relatively weak; some urea producers are focusing on exports as well as fulfilling orders that were pending from earlier in the year. Currently, the purchase price of urea for use in compound fertilizer production in Linyi, Shandong, is around 1840 yuan per ton (the same unit is used throughout). The selling price at the lower end of the market recently is around 1790 yuan per ton. Demand in the agricultural and consumer markets has slowed down; there are only occasional transactions in the industrial market. Fertilizer manufacturers have largely completed the procurement of raw materials for autumn use. Additionally, urea prices continue to decline, so new purchases of urea are being delayed, with a cautious approach taken and only limited replenishments being made. Monoammonium phosphate: Demand for monoammonium phosphate has been weak recently, with companies struggling to secure new orders. Although some firms still have some stock ready for shipment, the amount available is limited. At present, the actual price at which large manufacturers in Hubei sell 55% powdered ammonium phosphate is around 2000 yuan, or slightly less; it is said that the price at which large manufacturers in Shandong purchase 55% powdered ammonium phosphate is as low as 2100 yuan. Downstream compound fertilizer manufacturers are facing difficulties in shipping their finished products; it is reported that they have large inventory levels of raw materials. Although some of these companies have regular procurement plans, the quantities involved are not large. Recently, these compound fertilizer manufacturers have been operating at reduced capacity, resulting in a slow consumption of raw materials. Additionally, the price of sulfur, a key raw material for ammonium sulfate-based fertilizers, has been falling, which has led to a lack of confidence in this type of fertilizer. Even if there are new procurement plans, the quantities involved are small and not concentrated. Potash fertilizer: Currently, the price of potassium chloride is unable to rise nor fall. Inventory levels in the port remain high, and demand remains weak. Although Salt Lake raised prices slightly in August, prices for 60% crystalline potassium chloride in the market are quite inconsistent; those of traders holding inventory at lower prices from earlier periods tend to be relatively low, while others have higher prices. It is reported that the price upon arrival in Henan is 2160 yuan, 2180 yuan in Hebei, and between 2180 and 2200 yuan in Hubei. Even with price increases, it is difficult to boost demand, as there is little essential demand during this season. Fertilizer manufacturers do not purchase large quantities of potassium chloride, or they only fulfill orders that were placed earlier. The market for potassium sulfate is moderate; it is relatively stable compared to other types of fertilizers, and compound fertilizer manufacturers purchase it based on their actual needs. In summary, the procurement of raw materials for autumn fertilizers has been completed at this stage. In September, compound fertilizer manufacturers may reduce their production due to inspections in Daqing as well as environmental and safety regulations; therefore, August is the time when these companies should accelerate their production. They had accumulated an appropriate amount of raw materials in advance, and it is expected that the overall situation regarding raw material procurement in August will not be favorable. Even if there is any replenishment, the volume will likely be limited. (Zhao Hongye)