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Increase in prices of compound fertilizers: signs of a rise but no strong momentum _ Author/Source: China Fertilizer Network Date: 2020-10-26 Clicks: 18 In late October, the autumn fertilizer market came to an end, with winter stockpiling following shortly after. Compared to the same period last year, most compound fertilizer manufacturers reported that their overall sales volume during the autumn period remained unchanged; even if a few companies saw a decrease, it was minimal. Downstream demand has remained relatively stable, but market sales and purchases have continued to be sluggish. The main reason for this is the excessively low prices of compound fertilizers in the autumn; the price of certain types of these fertilizers dropped by nearly 200 yuan per ton compared to last year. Downstream distributors are under the greatest pressure, with their profits declining significantly, which in turn reduces their enthusiasm for stockpiling these fertilizers. This has directly led to a delay in the market for compound fertilizers in the autumn. As autumn comes to an end and winter storage begins, compound fertilizer prices have the opportunity to rise. Recently, the low prices that previously dominated the compound fertilizer market have gradually disappeared, replaced by arrangements for payment based on interest calculation or no fixed pricing at present. Most companies are actively working on determining prices for winter storage. Due to the significant rise in the prices of raw materials, compound fertilizers benefit from upward price pressures; companies could theoretically raise their prices without hesitation. However, so far, there have been very few such price increases. Although some companies plan to hold meetings regarding winter storage around the end of the month, new prices are not expected to be substantial. If there are any price increases, they will likely be minor, as there is still no confidence in significant rises – there are signs of change, but no real momentum behind them. First, cost pressures are increasing gradually. The fluctuations in the prices of compound fertilizers depend on the cost of raw materials. The low prices of compound fertilizers in the early stage were mainly due to low raw material costs; moreover, some companies sought to gain a competitive edge in the market by minimizing their profit margins, which led to price wars breaking out. Recently, there have been signs of price increases in compound fertilizers, mainly due to rising costs of raw materials. Taking the winter storage market as an example, after making several payments in previous rounds, some companies have not placed many additional orders; the cost of raw materials is mostly calculated based on previous purchase prices. While the price of raw materials at present has indeed increased, it is only the subsequent costs that might rise, so the pressure on these companies is not as great as one might think. Secondly, future demand is viewed negatively. Raw material prices have been rising for some time now, yet compound fertilizers have not managed to see price increases until now. The main constraint is the relatively pessimistic outlook regarding demand; even if prices are raised, it is not certain that there will be a large number of new orders. One reason for this is that winter storage essentially represents stockpiling during a slow season, during which actual demand from end-users is limited. The use of fertilizers is confined to southern regions during this period, while in northern regions, the fertilizers stored for winter are usually sold in the spring of the following year, over a long period of time. Given the price risks, dealers are cautious in their approach ； The second reason is that after several rounds of low-price advance purchases, the downstream parties have already built up a certain level of inventory; subsequent replenishments will likely have to be planned after the Spring Festival. In other words, those distributors who are supposed to place orders have already done so, while those who have not yet made payments are unlikely to do so before the Spring Festival. Finally, the supply is sufficient and orderly. Another major reason why the price of compound fertilizers fails to rise is the fact that supply far exceeds demand; there are hardly any shortages in the market throughout any season. During the autumn, the overall operating rate of large domestic compound fertilizer factories remains around 50%, with no significant decline to date. Apart from fulfilling existing orders, most companies strive to continue production in order to prepare for winter stockpiling. The climate is cold in winter, air quality is poor in northern regions, environmental inspections are intensified in some areas, and production restrictions occur from time to time; as a result, factory operations will inevitably be affected. However, this cannot be used as an excuse for shortages in the market. It can be said that there is absolutely no pressure on the supply of compound fertilizers during the winter storage period. In summary, there are strong calls for an increase in the prices of compound fertilizers recently, but market sentiment remains largely pessimistic. Rising raw material costs are not sufficient to drive up the prices of these fertilizers; if winter storage demand turns out to be favorable, then the chances of a price increase will be greater. (Feng Hongyang)