Autumn diammonium: things didn’t go as planned

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Autumn DAP sales fall short of expectations
Author/Source: China Fertilizer Network
Date: September 16, 2019
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Recently, the sales of autumn fertilizers at the grassroots level have gradually gotten underway in some regions. In the DAP market, major traders are nearing the end of their purchasing activities. Traditionally, during this period, DAP manufacturers, whether aiming to support their agency sales or ensure their own profit margins, tend to keep their overall quoted prices stable—even if they do not raise them. However, despite autumn being the peak season for phosphorus-based fertilizers, current DAP prices remain in a “cold spell,” with no signs of rebounding yet. At present, the typical ex-factory price for 64% DAP in Hubei Province is 2,400 yuan per ton; in Yunnan and Guizhou provinces, it ranges from 2,250 to 2,300 yuan per ton. For 57% DAP, the price is also reduced by over 300 yuan per ton. There is some room for negotiation, with price differentials ranging between 0 and 50 yuan per ton. Nevertheless, based on current market trends, it appears that DAP prices will continue to decline. The author has learned from market sources that various manufacturers recently held meetings with the intention of stabilizing prices; however, actual market behavior runs contrary to these efforts. First, there is an oversupply. This year, the overall operating rates of most diammonium phosphate manufacturers remained relatively high. Even during the usual off-season for demand in May, the actual production volume of diammonium phosphate that month was around 1.3 million tons. The manufacturing facilities either underwent routine maintenance only or stopped production for short periods. Domestic market demand was mediocre, and social inventory levels were high, which increased the supply pressure on these companies. As the demand from end-users increased in the autumn, the volume of new orders placed by companies between late spring and early autumn was affected to some extent. High social inventory levels further made it difficult for prices to rise. Additionally, there was a strong sense of pessimism among downstream customers. Due to consecutive years of losses, traders are somewhat pessimistic about future market prospects for diammonium phosphate. Although the use of fertilizer at the grassroots level in regions such as North and Central China has not yet begun in autumn, traders have already started selling at lower prices. Even though companies are determined to maintain their prices, the large amount of surplus stock in the market and the cautious attitude of traders mean that currently the prices of some diammonium phosphate products in the market are lower than those set by the companies. Based on this, it is expected that the settlement prices for diammonium phosphate will likely decline in the future. Once again, exports have quantity but no price. Although customs data show that as of July this year, exports of diammonium phosphate were several hundred thousand tons higher than in the same period last year, prices have not been satisfactory. In China, under the pressure of falling international prices, it is difficult for companies to see any improvement even if they raise their prices. Finally, the collection for winter storage is average. In previous years, some diammonium phosphate manufacturers began collecting advance payments for winter storage in the Northeast around mid-August. However, based on the current market situation, the recommended price for 64% diammonium phosphate for winter storage in Heilongjiang is around 2600 yuan, with certain interest calculation rules in place. The collection of payments for winter storage has been poor, and the manufacturers’ plans to use winter storage to alleviate pressure in the autumn market have failed. In summary, although it is currently the peak season for high-phosphorus fertilizers in autumn, the overall price of diammonium fertilizers remains relatively weak. It is expected that the settlement prices in the North China market during autumn will continue to decline slightly. (Wu Wenchao)