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Another Major Expansion in Production Capacity – How Much Do We Know? Author/Source: China Fertilizer Network Date: 19-01-2021 Clicks: 16 Since the construction of the first potash sulfate plant using the Mannheim process began on the Chinese mainland in October 1992, and up to May 31, 2012, when the 1.2 million-ton-per-year potash fertilizer production facility in the Lop Nur area of Xinjiang was completed, China’s potash sulfate industry has seen rapid development over these thirty years. According to statistics from Zhongfei Net, as of the end of 2020, China’s potassium sulfate production capacity within the water-salt industry was approximately 3.5 million tons (in terms of physical volume; the same applies hereafter). The production capacity of potassium sulfate produced by the Mannheim process was around 3.25 million tons. There were also capacities for producing potassium sulfate through the double-displacement reaction using sulfuric acid, as well as other methods, totaling several hundred thousand tons; however, due to low actual production levels and the fact that this output is mainly used internally, it is not included in general statistical analyses. In recent years, the apparent consumption has remained at around 4 million tons. Taking into account factors such as inventory carryovers from factories, the actual consumption volume is as low as 3.7–3.8 million tons; at its maximum, it can reach about 4.5 million tons, as was the case in 2020. It is evident that the production capacity of potassium sulfate in our country is developing very rapidly, and it is now at a level of surplus. Based on the maximum demand and maximum production capacity, an industry operating rate of 66.7% would be sufficient to meet domestic needs. Nevertheless, the production capacity for potassium sulfate continues to expand. According to statistics from Zhongfei Net, in 2021 there were no plans for the expansion or construction of new potassium sulfate production facilities in the water-salt-based production systems. However, the planned new production capacity for potassium sulfate using the Mannheim process was around 840,000 tons (some projects are carried out in phases, while others are part of long-term plans; the figure mentioned here refers only to the production volume for the year 2021. The specific distribution is as follows: Heilongjiang – 2 + 4 + 6 + 12 ； Liaoning 2+2 ； Inner Mongolia 2+4+8 ； Hebei 4 ； Shandong 8 ； Guangxi 24 ； Xinjiang’s 2+2+2 plan: it is likely that around 440,000 tons of capacity will be built there (with some of this capacity already in use), and most of this capacity is set to come online in the first half of the year. This major expansion of production capacity is not the first time for Mannheim; between 2014 and 2015, production capacity was increased by as much as 60% by the end of those two years. The scale of this expansion is only about 20%, but in terms of production capacity it is still very significant; after all, the baseline has **increased, and the current production capacity is already twice that of 2014. Based on the production volume of potassium sulfate in the water-salt system in recent years, a conservative estimate is that the annual production is 2.1 million tons. Subtracting this amount from the maximum consumption level of 4.5 million tons gives 2.1 million tons, which represents the production volume that the Wasser-Salz-System can handle. In other words, the production volume of potassium sulfate from the Mannheim process needs to be at least 2.4 million tons; any higher volume would create greater pressure. Assuming that only 440,000 tons of new production capacity will be added in 2021, Manheim’s total production capacity in the future will be 3.69 million tons, resulting in an average annual industry utilization rate of around 65% ； Assuming that all 840,000 tons are put into production, the new total capacity will be 4.09 million tons, resulting in an average annual industry utilization rate of around 59%. According to statistics from Zhongfei Net, the average annual operation rate of the potassium sulfate plant in Mannheim ranged between 55% and 60% over the three years from 2017 to 2019, while in 2020 it reached nearly 70%. With these figures compared to each other, the conclusion should be easy to draw, right? During both of these periods of significant expansion, there were substantial benefits: the price of potassium chloride fell while the price of potassium sulfate rose, or alternatively, potassium chloride saw an increase while potassium sulfate experienced a much greater rise. As a result, the profits of enterprises **increased**. However, the dividends in these two periods were not identical: between 2013 and 2014, the price gap between potassium sulfate and potassium chloride grew increasingly larger, reaching over 1,000 yuan at its peak (after taking into account the reasonable price differences due to costs). But in 2020, this price gap was only 300 yuan at most, and there was a clear downward trend in this gap. For specific details, please see the figure below. Therefore, although demand continues to grow (as can be seen from the chart above, strong prices for potassium sulfate are not something unusual), and exports have increased significantly since the elimination of export tariffs, considering both supply and demand as well as the market conditions, this expansion in production capacity may represent an overreaction to the favorable conditions seen in 2020. At present, the operating rate of the potassium sulfate industry in Mannheim has remained above 70% for six consecutive months, and it has even been around 80% for over two months in a row. Once a large amount of new production capacity comes online in the first half of the year, how many changes will take place in the market thereafter? Of course, although price trends and market conditions are ultimately determined by supply and demand, these factors do not always have complete control over them. At present, the market for potassium sulfate is performing well; prices have risen again in some areas recently. Moreover, the inventory levels at the end of 2020 have dropped to historical lows, so there does not seem to be much pressure in the short term. And more importantly, the expansion of new production capacity and industry restructuring are also inevitable and necessary stages for the healthy development of an industry; they are not something negative. They can facilitate the upgrading of products and services, as well as the rational allocation of resources. Perhaps they can even give rise to a new export star? The crucial point is that the idea of industry restructuring has been mentioned numerous times in the potassium sulfate market over the years, yet it has turned out that the development of this industry is getting better and better. So the industry is on the upswing; the companies that survive after repeated rounds of competition will surely embark on a broader path! (Adu)