Fertilizers: Declining demand and fierce competition

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Fertilizers: Declining demand and fierce competition Author/Source: China Fertilizer Network Date: 2020-01-09 Clicks: 31 In 2019, the supply and demand in China’s fertilizer market were roughly in balance. Although the prices of major fertilizer types remained at relatively high levels compared to the past three years, they showed an overall downward trend. By the end of 2019, China’s comprehensive fertilizer price index stood at 2,039.4 points, down 10.5% on a year-on-year basis and 9.7% from the beginning of the year. 　　Industry experts believe that as fertilizer usage officially entered a period of negative growth in 2019, the situation of surplus supply of fertilizers in China is expected to persist in 2020 as well; declining sales volumes may become the new normal, and competition in the market will be fierce. 　　Zhu Jian, Marketing Director of Hunan Tianbo Agricultural Inputs Company: Nitrogen fertilizers exhibit four key characteristics. In 2019, the price of nitrogen fertilizers was high at the beginning of the year but declined by 13.6% by the end of the year, representing the largest drop among all types of fertilizers. This is related to the significant price increases in nitrogen fertilizers, especially urea, in previous years. The nitrogen fertilizer market in 2020 is likely to exhibit four main characteristics: First, production is expected to increase. The phase out of outdated production capacity in the nitrogen fertilizer industry is now nearing completion. Meanwhile, new production capacity is being added in regions rich in coal resources such as Inner Mongolia, and some leading enterprises in other areas are also planning to expand their production. It is estimated that 2.52 million tons of additional urea production capacity will be added by 2020, including 800,000 tons per year from Hubei Sanning, 1.2 million tons per year from Inner Mongolia’s Wulan Group, and 520,000 tons per year from Shandong Mingshui. In 2019, China’s nitrogen fertilizer production reversed its downward trend over the previous years and experienced a slight increase; it is likely that production will continue to rise slightly in 2020 as well. 　　Second, market conditions change rapidly and frequently; the off-season is long, while the peak season is short. There are many factors that influence the nitrogen fertilizer market; environmental regulations, coal prices, exports, tenders in India, and bulk purchases by downstream users can all affect prices. Often, even the slightest change can lead to fluctuations in market prices, resulting in frequent volatility. 　　Third, there is fast turnover and low inventory in the distribution stage. Due to an oversupply in the market, dealers’ enthusiasm for holding inventory has dropped significantly. In recent years, the traditional pattern of low inventory and high sales in the nitrogen fertilizer market has been replaced by a model featuring rapid turnover and low inventory levels, and it is expected that this will remain the case in 2020 as well. 　　Fourth, there will be no significant increase in urea exports. The global nitrogen fertilizer market is generally characterized by an oversupply; it is expected that between 2020 and 2024, the increase in export-oriented production capacity in the international urea market will exceed the growth in demand, resulting in little increase in urea exports. 　　Wang Wenkang, manager of Guangxi Lvming Agricultural Inputs Co., Ltd.: The export situation for phosphate fertilizers is not optimistic. In 2019, the price of phosphate fertilizers dropped by 9.6%, primarily due to falling international prices for phosphate fertilizers, lower prices for raw material sulfur, and weak market demand. Looking at 2020, the outlook for phosphate fertilizer exports is not favorable, and it will be difficult for them to provide support to the domestic market. 　　Since 2007, our country has become a net exporter of diammonium phosphate; the export volumes of products such as monoammonium phosphate and heavy calcium carbonate are also high, and domestic fertilizer prices are greatly influenced by the international market. With the commissioning of new phosphate ammonium plants in regions such as the Middle East, the international competitiveness of China’s phosphate ammonium products has declined. In the first 11 months of 2019, China exported a total of 5.342 million tons of diammonium phosphate, a decrease of 13.9% compared to the previous year. The export situation for diammonium phosphate in 2020 remained unfavorable, and in the future, a reduction in the production of phosphatic ammonium compounds is likely to become the norm, leading to lower exports. 　　However, after a significant drop in prices, diammonium phosphate still holds a certain price advantage over compound fertilizers, which may provide support for the diammonium phosphate market. In addition, the trends in the sulfur market also need to be closely monitored; a major reason for the sharp drop in phosphate ammonium prices in 2019 was the plunge in sulfur prices. It is likely that sulfur prices will stop falling and start to rise in 2020, which is beneficial for the phosphate ammonium market. 　　Xu Nianhui, General Manager of Guangdong Changyu Agricultural Inputs Company: The contract prices for potassium fertilizers will decline. In 2019, the price of potassium fertilizers dropped by 9.7%; one reason for this was the decline in international potassium fertilizer prices, while another factor was the fall in prices of cash crops such as fruits and vegetables. 　　The most noteworthy aspect of the potash fertilizer market in 2020 was the prices of large-scale contracts for potash fertilizers. In October 2019, India signed a large-scale potash fertilizer contract at a price of $280 per ton, a rate that was already higher than the current prices in China’s potash fertilizer market. Various factors ultimately prevented China from concluding such a large-scale contract in 2019; negotiations for such contracts are expected to resume after the beginning of 2020. The weak market conditions for potash globally in 2019 are likely to continue into 2020, and China remains the region with the lowest potash prices worldwide; it is almost certain that the prices under large-scale contracts in 2020 will be below $280 per ton. 　　Over the past decade, the large-scale contract prices for potash fertilizer in China have been 0–30 dollars per ton lower than those in India; it is expected that in the future, the large-scale contract prices for potash fertilizer in China will remain around 250–260 dollars per ton. One reason is the strong pressure of global potassium fertilizer surplus; China’s supply of potassium fertilizers is on the rise, and sellers’ eagerness to sell is clearly greater than buyers’ desire to purchase. Another reason is that, over time, sellers need Chinese contract prices more to stabilize the overall situation, thereby stimulating potential demand for purchases. 　　Yuan Xinmin, a fertilizer distributor in Ganzhou, Jiangxi: The reshuffling in the compound fertilizer industry is accelerating. Compound fertilizers were the type of fertilizer that experienced the smallest decline in 2019, and the main reason for this is that their prices tend to lag behind those of simple fertilizers. Looking at 2020 and beyond, the amount of fertilizer used per mu in China is set to continue declining. This reduction is mainly due to a decrease in the use of simple fertilizers per mu, while there is still room for an increase in the use of compound fertilizers per mu. The demand for fertilizers specific to crops is on the rise, and compound fertilizers with functions to improve quality and efficiency will open up new markets. The key areas for development include new types of fertilizers such as slow- and controlled-release fertilizers, water-soluble fertilizers, organic-inorganic compound fertilizers, fertilizers containing medium and trace elements, and functional value-added fertilizers. 　　Another feature of the compound fertilizer market in 2020 was the continued acceleration of industry reshuffling. In recent years, although the compound fertilizer industry has seen the closure of many small and medium-sized enterprises, the overall reduction in production capacity has not been significant. Moreover, due to low investment requirements and ease of construction, new compound fertilizer production capacity is still being developed, resulting in a pronounced imbalance between supply and demand in the market. Furthermore, raw material prices are relatively high, while it is difficult to increase the selling prices of compound fertilizers; as a result, the profitability of manufacturing companies declines, and some even suffer losses. A reshuffling of the industry is inevitable. 　　In 2020, the compound fertilizer industry will enter an era of comprehensive competition based on quality, brand, technical services, and other factors, with enterprises of all sizes facing challenges.