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Domestic fertilizer companies are busy “losing weight” Author/Source: Sinochem News Network Date: April 22, 2020 Clicks: 12 It is now the season for listed companies to release their annual reports in April. Yangmei Chemical Co., Ltd., one of the top three domestic fertilizer producers in terms of annual production capacity, recently announced that it would sell its 100% stake in Fengxi Group, its 100% stake in Zhengyuan Group, 54.6% of its shares in Shenzhou Chemical, and its 100% stake in Shouyang Chemical. By doing so, it is further reducing its fertilizer-related assets, joining forces with companies such as Luxi Chemical and Chitianhua in this effort to “lose weight”. Yangmei Chemical Industry stated in its announcement that transferring the equity in the aforementioned subsidiary would help optimize the asset structure and improve profitability, which is in line with the company’s future operational needs. Many industry analysts also believe that YANGMEI Chemical’s decision to downsize at this time is aimed at getting rid of its inefficient assets in the fertilizer and chemical sector, in order to improve the performance of the listed company. Unlike Yangmei Chemical, which reduced its scale by shedding inefficient assets, Luxi Chemical, located in Shandong, took the initiative to downsize in order to transform itself into a company specializing in new chemical materials. In 2016, Luxi’s fertilizer production capacity reached 3.6 million tons; however, as a result of the policy to move industries out of cities and into industrial parks, its first, second, and fourth fertilizer factories ceased operations one after another. In 2017 and 2018, the revenue generated by Luxi Chemical’s fertilizer business dropped to 19.67% and 12.96% respectively, while the revenue from its chemical new materials business accounted for more than half of its total revenue. Compared to Yangmei Chemical and Luxi Chemical, Chitianhua has undertaken more thorough cost-cutting measures. On March 27, Chitianhua – once the largest nitrogen fertilizer manufacturer in Guizhou Province with a urea production capacity of over one million tons (now known as “Shengjitang”) – announced a major asset restructuring and put up for sale 100% of the shares in Tongzi Chemical. Upon completion of this transaction, this established state-owned enterprise, which has been operating along the Chishui River for nearly 50 years, will completely withdraw from the fertilizer industry and transform into a pharmaceutical company. In recent years, integration and restructuring in the fertilizer industry have progressed steadily. Five listed companies, including Liuhua Co., Ltd., Hechi Chemical, Chitianhua (now Shengjitang), Chuanhua Co., Ltd. (now ChuanNeng Power), and Jianfeng Chemical (now Chongyao Holdings), have successively decided to withdraw from the fertilizer sector and transform into companies operating in areas such as pharmaceuticals and new energy. Yang Chunsheng, a senior advisor at the Shandong Province Fertilizer and Coal Chemical Industry Association, believes that significant changes in the fertilizer market environment are the main reason why many listed fertilizer companies have withdrawn from this industry. In 2015, the Ministry of Agriculture issued the \"Action Plan for Zero Growth in Fertilizer Use by 2020,\" and achieved the goal of zero growth in fertilizer use three years ahead of schedule by 2017. At the same time, rising environmental standards, the introduction of environmental taxes, along with changes in the customer base, are also forcing smaller and less advanced enterprises to gradually withdraw from the market. In addition, various regions are striving to reduce energy consumption and coal use, and the fertilizer industry, which relies on traditional coal-based chemical processes, is particularly affected. Shandong Province has classified the fertilizer industry as a high-energy-consuming sector and has required its development to be scaled back; between 2015 and 2018, the province’s urea production capacity decreased from around 12 million tons to around 10 million tons. At the same time, affected by unfavorable factors such as overcapacity and inverted costs, fertilizer companies facing slow upgrades, high costs, and heavy burdens are under tremendous pressure in their operations. Over the past few years, ST Liuhua, which has suffered losses for consecutive years, and Sichuan Yingfeng went into bankruptcy and were liquidated; ST Hehua, Chitianhua, and ST Yihua sold off some of their assets, while ST Yanhu recorded huge losses. Meanwhile, industry capital is actively moving around; mergers and acquisitions such as the merger of KaiPhos and Wengfu, HuiLong’s acquisition of HaiHua, and Sinochem’s control over Luxi have all contributed to a steady increase in the concentration of the fertilizer industry from another perspective.