Is it highly likely that the price of compound fertilizers will rise after the New Year?

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Is it highly likely that the price of compound fertilizers will rise after the New Year? Author/Source: China Fertilizer Network Date: 2020-01-20 Clicks: 591 On the eve of the Spring Festival, the fertilizer market entered a brief period of downtime; companies halted shipments and reduced production levels, while distributors stopped stocking up and waited to see what would happen. As the winter storage of compound fertilizers progresses, progress in many areas is slower than in previous years, with a pessimistic atmosphere dominating the market. Although there was a slight surge in trading of compound fertilizers in some areas around New Year’s Day, this was mainly due to the delivery of orders placed earlier; new orders remained low. The market is unlikely to improve before the holiday, so there is high anticipation for it after the holiday, while opinions on its future trend vary widely. At present, the key focus regarding compound fertilizers in the coming year is their price trend. Given that prices have remained low since the start of winter storage and are significantly lower than in the same period in previous years, an increase in prices could become an important factor in stimulating the market at the beginning of the new year. Based on the winter storage prices from before the New Year, there is indeed a possibility of price increases after the New Year. However, taking into account factors such as raw materials and supply and demand, an upward trend in prices after the New Year seems more likely than a sharp increase right away. Firstly, cost support is not as strong as expected. The factor that drives up the price of compound fertilizers is the increase in their costs. As is well known, raw material prices are generally low during the winter storage period, and this situation lasts for a long time; as a result, companies’ pricing for winter storage drops significantly, with prices in some areas even approaching the cost level. There is a possibility of an increase in the prices of compound fertilizers after the holiday. One reason for this is that the price of urea has remained relatively stable compared to earlier periods, and the increased demand from industrial and agricultural sectors after the holiday will help maintain the current price levels ； The second reason is that the current prices of phosphorus and potassium fertilizers are extremely low; companies may be inclined to raise prices after the holiday. However, these changes in the prices of raw materials are not sufficient to prompt an immediate recovery in the market for compound fertilizers. Secondly, demand recovery is not as rapid as expected. Another major reason for the bullish outlook for compound fertilizers after the festival is the release of remaining demand from downstream sectors, and this will also be the most reliable factor driving price increases in the compound fertilizer market during spring. The quantity available for purchase before the festival is limited; rumors suggest that the supply reaching some downstream areas amounts to only one-third of the total amount. Such a large surplus creates hope for an improvement in market conditions, and it attracts the attention of many companies. It is worth noting that the market did not start up as quickly as expected after the festival. Taking the Northeast region as an example, the period for using fertilizers in spring generally falls after April; thus, there are two full months following the Spring Festival for distributors to take action. As a result, downstream parties may still approach the market with caution. Finally, the supply side is not as strained as expected. In addition to relying on raw material costs and downstream demand to determine the trend of compound fertilizers after the festival, market participants also consider the supply side as one of the key factors that could drive speculation. However, will supply indeed be extremely tight when the fertilizer market resumes activity after the Spring Festival? The editor believes this is not necessarily the case. One reason is that although there is still significant demand at the downstream level, as mentioned earlier, distributors have ample time to stock up supplies, so the market may develop gradually ； The second reason is that before the holiday, the operating rate of most compound fertilizer manufacturers remained around 40%, resulting in a certain amount of inventory. This is done to ensure smooth fulfillment of downstream demand after the holiday and to avoid any issues in the supply chain. In summary, it is certain that the overall atmosphere in the fertilizer market after the Spring Festival will be better than before the festival, and the prices of compound fertilizers will also remain stable or increase. However, considering all these factors, the possibility of a sharp price rise is low; therefore, dealers should assess the market rationally and act cautiously. (Feng Hongyang)