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Ammonium chloride production cuts: Could it be a day of turning points? Author/Source: China Fertilizer Network Date: 2020-05-06 Clicks: 39 As the May Day holiday comes to an end, the price of ammonium chloride remains relatively stable. Production facilities are operating at a high level for now, and existing orders are being fulfilled one after another; however, there are only a limited number of such orders left. New order signings are average, and some people in the market hold a bearish outlook ； However, due to the sluggish soda ash market, companies in the caustic soda industry are under considerable inventory pressure, and there is even a risk of further price declines. Unable to bear this inventory pressure, some of these companies have begun planning maintenance work; many caustic soda manufacturers in regions such as East China and Southwest China intend to carry out short-term or long-term maintenance in May. This will more or less alleviate the pressures on both suppliers and consumers. At the same time, the market is waiting to see whether a decrease in production in the ammonium chloride industry could mark a turning point for its market conditions. Firstly, the overall industry utilization rate of caustic soda manufacturers is showing a trend of declining from high levels. According to statistics from China Fertilizer Network, as of now the overall operational rate of the caustic soda industry is around 72.7%, with plants operating at high capacity levels. This situation is unfavorable for sales and inventory accumulation for these companies. However, due to low activity in downstream markets such as glass manufacturing, there is a high level of inventory of finished products, which has led to a downturn in the price of raw caustic soda and pressure on sales. Under the pressure of inventory, caustic soda manufacturers are forced to reduce their production levels. As a result, most ammonium chloride producers in the East China region plan to carry out maintenance work from May 6th until the end of the month, for periods ranging from 7 to 30 days. This will result in a decrease in the industry’s operational rate, which is likely to drop to around 60%. In such a scenario, there might be a slight shortage of ammonium chloride supplies in some local markets. At the same time, the mindset within the industry might improve, especially as the bearish attitude of traders could change to some extent; in fact, some traders in certain markets might take this opportunity to engage in a degree of speculation or adopt a more aggressive trading approach, although factories will be more cautious in their actions. Secondly, the ammonium chloride market is supported by summer fertilizers, but overall demand remains moderate. Currently, the overall operational rate of the compound fertilizer industry is low, at less than 60%. Due to limited end-demand, sales of compound fertilizers progress slowly; as a result, companies lack enthusiasm for production, and the volume of raw materials purchased is limited, including ammonium chloride as well ； However, there is still optimism regarding the summer fertilizer market to come. With high-nitrogen fertilizers being the dominant product in this market, some downstream companies may prefer to choose urea, especially since urea prices are currently low and continuing to decline, making it the preferred choice for compound fertilizer manufacturers ； The demand in the Northeast market has long since ceased, and there are very few remaining orders to complete. As a result, most of the ammonium chloride supplies have to be sent to the South, where there is an ample supply available in the market ； At the same time, the operating rate of enterprises that produce ammonium chloride in pellet form is low, resulting in little demand for powdered ammonium chloride, and thus there is little support available ； Additionally, export conditions are fairly good; in March, China exported a considerable amount of ammonium chloride used as fertilizer, as well as nitrogen-phosphorus compound fertilizers. However, due to the impact of the international pandemic, exports remain hindered to some extent. Moreover, since it is the off-season, export volumes in April are likely to decrease compared to March. Once again, the weak market for urea has a negative impact on the price trend of ammonium chloride to some extent. In the agricultural off-season, wholesale activities at the grassroots level are slow; the volume of urea sold is low. Factories have limited orders awaiting shipment as well as new orders, while large traders maintain a strategy of purchasing only as needed ； The composite fertilizer plants are operating at a low level, and the support provided by industrial demand alone is not sufficient; therefore, if urea prices remain low, ammonium chloride will inevitably be affected to some extent. Overall, with the downward trend in production volume among some ammonium chloride manufacturers in the coming period, supply levels in certain areas may become slightly tight, which should lead to an improvement in market sentiment. Additionally, given the currently limited inventory levels of ammonium chloride in both upstream and downstream markets, these manufacturers are likely to maintain a firm pricing strategy. However, it is not ruled out that individual companies might adjust their prices slightly in order to earn more revenue; there could thus be some fluctuations. It is expected that ammonium chloride prices will remain stable in the short term, with only minor adjustments in certain areas. (Tan Junying)