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If the price of DAP fails to rise, will the compound fertilizer end up unsold? Author/Source: China Fertilizer Network Date: 2020-07-06 Click-through rate: 8 Spring gives way to autumn; time flies by. In the blink of an eye, the fertilizer market has entered the autumn season. Compared to the previous two seasons, the compound fertilizer market continues to play a crucial role in autumn as well. In autumn, wheat cultivation is the main agricultural activity in many regions of China. The fertilizers required are mostly high-nitrogen/high-phosphorus compound fertilizers. Typically, after September, end-users begin to stock up on fertilizers in large quantities. Although the actual fertilization season is still far off, some companies can no longer wait and have already announced relevant pricing and advance-payment policies. According to Zhongfei Net, the suggested ex-plant prices for some companies’ 45% chlorine-based high-nitrogen/high-phosphorus series (such as 25-14-6/18-22-5) range from 1,820 to 1,930 yuan per ton, which represents a decrease of over 200 yuan per ton compared to the same period last year. Such a sharp decline has, to some extent, heightened the pessimistic atmosphere in the market, and it is this pessimism that dampens downstream demand for purchases. What’s even more concerning is that the price of diammonium fertilizers on the other side also plays a key role; if its price does not rise significantly in the coming time, then the prices of compound fertilizers in autumn are likely to remain low. Firstly, the substitution cost is relatively low. As is well known, phosphate fertilizers such as monoammonium phosphate and diammonium phosphate have remained at low levels for some time; their prices even dropped to surprisingly low levels. Although there has been a rebound recently, the price of diammonium phosphate is still somewhat lower compared to the same period last year. In autumn, a larger amount of high-phosphorus fertilizers is used, and in many regions such as Hebei and Shandong, diammonium phosphate is commonly used as a base fertilizer for wheat. The main reason for the expected increase in the use of diammonium phosphate this year is still its low price; the lower the price, the more cost-effective it becomes to use this fertilizer. As a result, the use of compound fertilizers may be affected to some extent. It is only once the official factory prices become clear that we can say that the real competition with diammonium phosphate has begun. Secondly, the outlook for the future market is very different. Regarding the market for compound fertilizers, a weak performance is more likely to occur in the autumn season. The main reasons for this are low raw material costs, insufficient demand from end-users, and overall overcapacity. These same factors are present in the compound fertilizer market during spring and summer as well, only the expectations for autumn are more in line with reality ； The price of diammonium phosphate is likely to show a steady upward trend in the future. One reason for this is the increased demand in autumn in China; recently, diammonium phosphate has begun to arrive in the North China region, and some companies still have orders that have not yet been fulfilled ； The second reason is that the export market continues to thrive, with strong demand in markets such as India and Brazil. The vastly different outlooks for diammonium fertilizers and compound fertilizers are likely to have a moderate impact on the fertilizer market this autumn. Finally, competition in the industry is already fierce. In recent years, the compound fertilizer market has been on a downward trend, with both upstream and downstream parties facing significant challenges. Upstream production capacity continues to increase year by year, while downstream demand remains modest; as a result, market sales do not reach the levels expected. The market activity in each season starts early and ends early as well, with the overall trading cycle becoming shorter and shorter. One of the reasons for this is severe overcapacity, intensified competition in regional markets, an increasing variety of brands, and thus more choices available for downstream consumers ； The second reason is price chaos; often at the beginning of a market’s development, there are numerous promotional policies for popular products, with their prices being significantly lower than the market average, which to some extent leads to disorder in market prices. In summary, the compound fertilizer market in autumn remains unpredictable. Apart from factors such as raw materials and supply-demand dynamics, the market trend of DAP is of paramount importance. Compared to a significant price surge, it is more likely that DAP prices will see only a slight increase in autumn. This will undoubtedly have a negative impact on the compound fertilizer market, but it won’t necessarily lead to losses for producers. (Feng Hongyang)