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Winter storage of compound fertilizers: A one-time deal – profit or loss? Author/Source: China Fertilizer Network Date: 2020-09-18 Clicks: 6 Recently, the market for compound fertilizers has remained relatively stable. The autumn market is coming to an end, and the long-awaited surge in orders for restocking did not materialize as expected. Although many companies had a busy period with orders earlier on, new orders were quite scarce. As sales at the retail level start up again, there will be a need for stock replenishment in the short term, though this need is likely to be limited. In other words, the wheat fertilizer market in autumn will continue to face the same awkward situation as at the end of the previous two seasons, with things being handled in a hasty manner. After the autumn market period ends, winter storage naturally becomes a focus of attention. However, the current winter storage market is eerily calm. At the end of July and the beginning of August, some companies took the initiative to set prices, which were incredibly high. After a period of collecting payments, the lower-priced options gradually disappeared. At present, interest-based pricing is the only option available in the market, and most companies say that it’s difficult to determine the prices for winter storage; information on this topic won’t be available until at least October. However, before that, many distributors took advantage of the low prices to stock up on compound fertilizers, accounting for half or more of the total inventory. After making these purchases, they are waiting to see how the market develops in the future; it’s impossible to say whether they will make a profit or a loss. But based on the current positive and negative factors, the prevailing price level for winter storage this year is likely to be relatively low. First of all, there is no chance for a sharp rise in raw material prices. Raw material costs indeed influence the pricing of compound fertilizers. The reason for relatively stable prices during the autumn wheat fertilization period is that fluctuations in raw material prices are limited, with prices generally remaining steady. Following a series of tenders in India, urea prices rose significantly, but prices of compound fertilizers did not experience large fluctuations; companies prefer to maintain stable prices and are reluctant to raise them easily. Regarding the future outlook for raw materials, market opinions tend to be cautiously optimistic; the price of urea fluctuates frequently, and the effects of betting on price increases and decreases are actually similar ； The ammonium market remains stable overall, making it difficult for companies to find opportunities to raise prices ； There are strong calls for an increase in the price of potassium chloride, but little actual support for such a rise. Secondly, the demand for winter storage is not what it used to be. Even if the price is low, it’s of no use if there is no demand. Compared to the past, demand for winter storage has been decreasing in recent years. One reason for this is the increased level of risk; due to the long time frame and frequent changes in market conditions, dealers often end up causing harm to themselves, not only failing to make a profit but also frequently incurring losses, which leads to a significant loss of confidence ； The second reason is that the prices of compound fertilizers are more transparent, resulting in minimal profit margins, especially for conventional products. If one simply follows the established practices without seeking alternative approaches, the significance of winter stockpiling becomes unclear. In order to minimize risks, distributors must act with caution. Ultimately, the beginning already hints at the end. What sets this winter’s storage market apart from previous ones is that chaos reigned in the market even before it actually started. The Northeast region, one of the most representative areas in this regard, saw very low prices for goods at the initial stage, prices that were almost at the cost level. This reduced the competitiveness of goods from other provinces significantly. Even if suppliers tried to follow those low prices, the transportation costs in some areas posed a major obstacle, resulting in delivery prices that were higher than those of locally sourced goods. The emergence of low-cost supply sources is, on the one hand, a sign of companies sticking to their own strategies ； On the other hand, it is the result of a vicious market cycle: supply far exceeds demand. Apart from appropriate marketing tactics, the best approach is to increase investment and compete in the market through price, which also provides the best indication for future market trends. In summary, the high or low prices of winter storage compound fertilizers affect companies, but they cannot completely control downstream distributors. As long as there is confidence in future market conditions, distributors will still make the necessary stockpiles regardless of the high prices. On the other hand, setting low prices from the start may cause distributors to develop a pessimistic attitude toward future market trends and become hesitant in their actions. Therefore, low prices are not necessarily the best way to win the winter storage market; whether it leads to profits or losses can only be determined over time. (Feng Hongyang)