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Below 1,900 yuan: Capacity surges – Is a price war over winter storage of compound fertilizers imminent? Author/Source: Date: 2020-08-03 Clicks: 37 At the end of July, shipments to areas in need of wheat fertilizers began, and compound fertilizer manufacturers were already halfway through their preparations for autumn fertilization. Meanwhile, preparations for winter storage of compound fertilizers in the Northeast region have also started. It is said that by around October this year, the production capacity in that region will gradually come online. Does this mean that a price war over winter storage is imminent this year? Firstly, new production capacity in the Northeast region has increased sharply this year. According to research by China Fertilizer Network, there has been an increase in the number of high-tower facilities for compound fertilizers in the Northeast region this year. In particular, one enterprise in Jilin Province has added 2 such high-tower facilities, giving it a production capacity of around 600,000 tons; other enterprises are also expanding their production capacities, with an additional several million tons of capacity expected to be added by the end of the year – of course, this is under the assumption of full operational capacity. However, such a significant increase in the production capacity for high towers indicates that competition in the market for high tower products in the Northeast region this year will be more intense. Secondly, low-priced bestsellers appeared frequently last July, and the same is true this year. I still remember last July, not long after the prices for wheat fertilizers were set, many companies in Hubei region began to announce the prices of their sulfur-based fertilizers. The factory price for 45% sulfur-based compound fertilizers was around 1,940 yuan per ton. This situation repeated itself this year as well; in mid-June, companies in Hubei region again announced the prices of their products, with the factory price for 45% sulfur-based compound fertilizers ranging from 1,930 to 1,970 yuan per ton. By the end of July, a few companies in the Northeast region started to provide prices for winter storage purposes, and the factory price for 48% chlorine-based high-nitrogen fertilizers dropped below 1,900 yuan per ton. Such low prices were truly surprising. Once again, the Northeast performed well in the first half of the year, but the situation is likely to be less optimistic in the second half. In recent years, the concept of winter storage has become less important. In the northeastern regions, the winter stockpile each year accounts for around 30% of total demand. This year, due to the impact of the pandemic, it has been difficult to ship fertilizers. A surge in demand from downstream sectors led to price increases and an increase in sales volume, which helped alleviate the inventory pressures associated with fertilizers in the Northeast over the past few years. However, in the second half of the year, as production capacity increased and factors such as drought in certain areas took their toll, although some companies offered lower prices for winter storage, the cautious attitude of downstream buyers remained unchanged. Finally, the increase in production capacity will inevitably intensify competitive pressures in the market. If raw material prices remain low and market demand fails to pick up, a price war over winter storage is likely to break out – of course, this assumes no unexpected events occur. As of now, the outlook for the compound fertilizer market in the second half of the year remains unfavorable.