Brief analysis of the monoammonium market in 2019
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A Brief Analysis of the Ammonium Nitrate Market in 2019Author/Source: China Fertilizer Network
Date: 2019-12-09
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As 2019 came to an end, there was no sign of improvement in the market for ammonium nitrate. Throughout the year, overall prices for this product showed a downward trend. The weak condition of raw material markets and decreasing cost support also contributed to this situation. Nevertheless, demand remained low. This year, downstream compound fertilizer manufacturers, due to pressures related to environmental and safety inspections as well as sales issues, purchased raw materials in a different manner compared to previous years – they bought only what they needed, in moderate quantities, without any large-scale purchases or centralized buying. With such low demand, it was difficult for ammonium nitrate producers to reduce their inventory levels, even if they kept their production rates low. Compromise was inevitable. The market is on the verge of shifting from zero growth in fertilizer usage to negative growth. It is expected that the ammonium nitrate market will present a different scenario in 2020. Below, the author briefly outlines the positive and negative factors affecting monoammonium. Positive factors: Firstly, the overall operating rate of ammonium sulfate manufacturers has remained low for a long time. This year, the operating rate of the ammonium nitrate industry has remained around 50%, and the main production area of Hubei is no exception. As environmental improvements are carried out along the Yangtze River, the operations of some ammonium nitrate manufacturers in Hubei have been affected to some extent. However, the main reason for this low operating rate lies in overcapacity and weak demand. Enterprises in Hubei, the southwest, Henan and other regions have restricted production or ceased operations, with some small factories remaining shut down for extended periods. Although a low operating rate should theoretically provide support for ammonium nitrate prices, given the market conditions in 2019, it is unlikely that low operating levels next year will bring significant benefits to ammonium nitrate prices; the supply and demand situation at that time will also need to be taken into consideration. Secondly, the product shifts toward high-concentration monoammonium. In recent years, ammonium sulfate producers have been well aware of the problems caused by excessive production capacity, and they have continuously sought new directions for business development. 55% powdered ammonium sulfate accounts for a large proportion of the industry’s production capacity, resulting in an oversupply; as a result, competition among companies is fierce, with low prices being common. Some companies adjust the types of products they produce according to downstream demand at different times; others shut down their facilities for producing 55% powdered ammonium sulfate or switch to producing 58% or 60% powdered ammonium sulfate. Still other companies temporarily cease production of agricultural-grade ammonium sulfate and increase production or switch to producing water-soluble ammonium sulfate with concentrations of 64% or 66%, or industrial-grade crystalline ammonium sulfate with concentrations of 72% or 73%. The results are fairly good; it is evident that, as market conditions change, an appropriate adjustment of the industrial structure is an inevitable trend, and this will also help to alleviate the supply pressure associated with low-concentration ammonium compounds to a certain extent. Once again, factories are merged and reorganized. In 2019, two major companies in Guizhou, which are leaders in the production of phosphate ammonium, merged and reorganized – an important event in the history of this industry. This merger led to an improved utilization rate of phosphate rock resources, lower costs for phosphate ammonium, more reasonable pricing, reduced internal competition among the companies, and enhanced their market competitiveness. The integration of these resources brought a new dimension to the market. Negative factors: First, the conditions in the end-market are sluggish, putting significant pressure on compound fertilizer manufacturers. In 2019, the low prices of agricultural products such as grains continued from previous years; farmers’ enthusiasm for cultivation remained low, demand for fertilizers decreased, and distributors preferred new types of fertilizers with higher profits, gradually losing confidence in traditional fertilizers like compound fertilizers which offered lower profits. The sales of finished products by compound fertilizer companies are already not satisfactory, and on top of that, their operating rates are constantly affected by environmental and safety inspections, resulting in slow consumption of raw material inventory. Under the backdrop of a persistently sluggish fertilizer market, these companies face enormous pressure. It is expected that the sluggish market situation in 2020 will also be difficult to reverse completely. Second, inventory levels of raw material sulfur at ports have reached record highs. In previous years, the highest level of sulfur stock at the port was around 1.7 million tons; in 2019, this figure rose to over 2.5 million tons. By the fourth quarter, the sulfur stock at the port had dropped to around 2.2 million tons. However, with an increase in shipments recently, and considering that phosphatic ammonium fertilizer manufacturers purchase sulfur on a quarterly basis, it is unlikely that the sulfur stock at the port will drop significantly in the short term, nor is it likely that prices will rise substantially. Third, companies are prone to compromise under pressure. During periods of weak demand, some companies face increased inventory pressures; in some cases this leads to excessive inventory levels, forcing them to suspend production. Downstream compound fertilizer manufacturers show little enthusiasm for making purchases. In order to secure orders, ammonium phosphate producers and traders offer products at low prices. Some companies even sell their inventory at low prices in a hurry, rather than adopting a strategic \"starvation marketing\" approach. Policies aimed at maintaining low prices prevail in the market, which helps to relieve companies’ pressures in the short term; however, such actions hinder the long-term development of the ammonium phosphate industry. Fourth, domestic overcapacity is gradually decreasing year by year, but it still cannot be ignored. In 2019, the overall operating rate of ammonium nitrate remained around 50% for much of the time. Even amid a sluggish economic environment, there was no shortage in the supply of ammonium nitrate, which indicates that there is still an issue of overcapacity in this sector. Many companies are unable to operate at full capacity on a regular basis, and some small factories have been shut down for extended periods; therefore, optimizing production capacity remains an issue that cannot be ignored, and companies should work together to address it. In summary, considering the current market for winter storage of compound fertilizers, demand for monoammonium phosphate is not expected to see significant improvement in the short term. The support provided by raw material costs is weak, and even if the production levels of monoammonium phosphate manufacturers remain low, it will be difficult for this situation to change in the near future. (Zhao Hongye)