Thread Content
Low-demand period for chemical fertilizers: Initiation was early, but enthusiasm was low. Author/Source: Sinochem News Network. Date: 2019-10-16. Clicks: 29. The low-demand period for chemical fertilizers begins after August each year. At present, in some markets this year, the process of reducing inventory levels started earlier, but overall market activity remains low. The main reason for this is that the industry is not optimistic about the future trend of the fertilizer market, leading to a cautious approach to reducing inventory levels. Early stockpiling has already resulted in losses. According to a distributor in the Northeast, the process of stockpiling marketable fertilizers started relatively early this year; companies began setting fixed purchase prices in mid-to-late July, which is nearly a month earlier than in previous years. At that time, the buyout price for 45% sulfur-based compound fertilizer was mostly around 2,150 yuan per ton (the same unit applies hereafter), which was at a relatively low level and attracted some distributors to get involved. However, to everyone’s surprise, the current price is 30–40 yuan lower than it was in July. This decline rather than an increase has dampened dealers’ enthusiasm for carrying out stockpiling operations, and it also reflects to some extent the intensity of competition in the market for fertilizer stockpiling this year. Xu Shuxian, an analyst at Jinchuang, said that the decline in market prices for fertilizers during this year’s off-season storage period is mainly due to falling raw material costs. Over the past 3 months, there have been relatively significant changes in the main raw materials used for compound fertilizers. Although the price of urea fluctuated during this period, it tended to decline overall. Furthermore, phosphate ammonium and potassium fertilizers have continued to show a downward trend, reducing the support for the cost of compound fertilizers and thus laying the groundwork for companies to lower their prices. According to statistics from JLC, as of now, the price of small-particle urea in Shandong has dropped by about 140 yuan since early July. In Hubei, the price of 55% powdered monoammonium phosphate has fallen by 110–120 yuan. Meanwhile, the lower-end prices of potash fertilizer have also decreased by 50 yuan. Based on 45% chlorinated compound fertilizer, the current raw material cost is 82 yuan lower than it was at the beginning of July. Furthermore, recent raw material prices have also dropped significantly compared to the same period last year. Among them, urea dropped by 260–270 yuan, monoammonium phosphate dropped by 380 yuan, and potash fertilizers dropped by 170–200 yuan. The future trend is unlikely to be positive. Li Yueqing, chairman of Hunan Tianbo Agricultural Inputs Co., Ltd., said that urea is the key type of fertilizer and also plays a major role in seasonal stockpiling, but its future outlook is not optimistic, which dampens distributors’ enthusiasm for such stockpiling efforts. Industry data shows that since the beginning of this year, the urea market has been performing well, with operating rates remaining at high levels—up 3% compared to the same period last year. From January to July, the actual output of urea reached 30.48 million tons, an increase of 870,000 tons over the same period last year. Li Yueqing believes that from the fourth quarter of this year to the first quarter of next year, the supply of urea is expected to continue to increase on a year-on-year basis. There are three main reasons for this: first, enterprises that halted production will resume operations; second, the environmental protection measures imposed during this winter will not be as strict as in previous years, so the situation of fertilizer manufacturers having to reduce production or shut down their facilities should not be as severe as last year; third, although natural gas supply will remain tight, it is expected to improve this year as the supply volume increases. From the downstream perspective, due to the implementation of a zero-growth strategy for fertilizers, demand for these chemicals is showing a downward trend, which will exacerbate the supply-demand imbalance in the domestic market. Taking into account factors such as supply and demand, imports and exports, and production costs, Li Yueqing believes that the ex-plant price of urea will fluctuate between 1,700 and 1,900 yuan in the coming period; dealers who try to buy up supplies at high prices will face significant risks. There are opportunities for certain varieties. Although the overall trend for fertilizers during this year’s off-season storage period doesn’t seem very promising, there are still some chances for individual varieties, such as diammonium phosphate. Wang Wenkang, manager of Guangxi Lvming Agricultural Supplies Co., Ltd., said that the price of diammonium phosphate has dropped significantly this year, being about 400 yuan lower than its peak level in the first half of the year. The main reason for this is the decline in international prices. Due to a 20% overall reduction in the use of phosphate fertilizers in the North American market, the offshore price of diammonium phosphate dropped from $405 at the beginning of the year to $325–327 currently, representing a decline of 20%. At the same time, falling raw material prices have reduced the production costs of diammonium phosphate, which has also contributed to a decline in prices. Currently, the price of sulfur has dropped below 700 yuan, compared to over 1,000 yuan last year; the price of phosphate rock has fallen by about 50 yuan since the beginning of the year; and the price of liquid ammonia has dropped by about 300 yuan since the beginning of the year. The prices of all three key raw materials are falling, which reduces the cost support for diammonium phosphate. “Currently, the price of diammonium phosphate is low, giving it a strong competitive advantage over compound fertilizers; it is expected that demand for it may increase during this year’s winter wheat planting. Overall, the operational risks associated with moderate inventory levels of diammonium phosphate this year have decreased. ”Wang Wenkang analyzed. A dealer in Xinjiang also stated that currently, the price of DAP is at its lowest level since spring 2017. This means that in the competition between DAP and compound fertilizers next spring, DAP will have a price advantage. It is expected that the demand for diammonium phosphate will increase compared to previous years next spring; if prices continue to fall, it could represent a good opportunity for stockpiling during this off-season period.