Rising raw material costs: Is there no way to avoid higher prices for compound fertilizers?

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Rising raw material costs: Is there no way to avoid higher prices for compound fertilizers? Author/Source: China Fertilizer Network Date: 2021-06-07 Clicks: 4 As June arrived, the fertilizer market continued to be a topic of intense discussion, with \"price increases\" becoming the main focus. This round of price rises in fertilizers lasted for an extended period and were more pronounced than expected; many types of fertilizers saw price increases of several hundred yuan. Urea and monoammonium fertilizers were particularly affected, and as a result, the costs of compound fertilizers also rose. Naturally, factory prices followed suit and increased as well. Apart from tightening or eliminating preferential policies, there is still a possibility of further price increases on the part of some companies in the future. 　　The general rise in raw material prices directly affects the adjustment of the ex-factory prices set by compound fertilizer manufacturers. According to Zhongfei Net, as of this weekend, the mainstream ex-factory price for 40% chlorine-based high-nitrogen fertilizers with a composition of 28:6:6/30:5:5 across the country was between 2,130 and 2,260 yuan per ton, an increase of around 50 yuan compared to the end of May. Although the summer market is nearing its end, faced with sudden cost pressures, compound fertilizer manufacturers are forced to raise their export prices, and they are worried about how to open up the autumn fertilizer market going forward. 　　Firstly, there is a risk of fluctuations in raw materials. At present, the increase in raw material prices is astonishing, yet the risk of subsequent price drops cannot be underestimated either. The strong demand for urea in the domestic market is due to the peak demand periods in certain regions at present; the need for summer top-dressing and base fertilization in the northern regions has led to a slight shortage of urea supply in some factories. Coupled with relatively low levels of inventory, the price of urea is likely to remain firm in the short term. Once these demand patterns cease, there may no longer be any reason for continued price increases. Similarly, there is a risk of price drops for other raw materials as well, so the long-term market situation requires careful consideration. 　　Secondly, whether the demand can be smoothly connected. Recently, demand for compound fertilizers has increased in some regions. With the commencement of wheat harvesting in the Central Plains region, the market for high-nitrogen corn fertilizers for summer use has entered its final sprint phase. Shipments from upstream manufacturers and purchasing/selling activities downstream have been quite active. It is worth noting that currently, the available supply in certain markets still primarily consists of orders placed earlier on; goods at higher prices account for a relatively small proportion. Wholesale and retail prices at the grassroots level have not seen any significant rise. Following the price increase of compound fertilizers toward the end of summer, there was little reaction from the market. At the beginning of autumn, it is highly likely that most companies will set their prices at relatively high levels. Whether distributors will readily accept these prices remains to be seen. 　　Finally, how to start autumn off on a successful note. In recent weeks, the overall operating rate of compound fertilizer manufacturers has been showing a gradual decline, with the current level around 44%. One reason for this is the winding down of demand during the summer, prompting some factories to reduce their production volume in order to clear their inventories ； The second reason is that some companies have limited stock of raw materials; given the high risks associated with further purchases, they are forced to limit the number of orders they take and adopt a wait-and-see approach for now. The higher the prices of raw materials continue to rise, the more difficult it becomes for compound fertilizer manufacturers to procure these materials. If the main market trends in autumn remain unclear for an extended period, downstream companies’ confidence in stockpiling will also gradually decline, and the start of autumn may follow a similar pattern. 　　In summary, with the general rise in raw material prices, it is only logical that the prices of compound fertilizers also increase. Prices will remain high throughout the remaining part of the summer, and it is expected that the market situation for autumn fertilizers will gradually become clearer after late June. (Feng Hongyang)