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Fluctuations in the fertilizer market: What impacts will they have this winter and next spring? Author/Source: Fertilizer Circle Date: 2021-11-01 Clicks: 8 This year, the prices of chemical fertilizers have remained at historically high levels for the past decade. In the middle and late September, multiple departments issued joint statements emphasizing the need to ensure a stable supply and prices of domestic fertilizers in the coming period, which helped to curb the upward trend in fertilizer prices to some extent. However, at present, there is a widespread effort across the country to strengthen the control and management of total energy consumption and energy intensity (referred to as the \"dual control\" of energy use). Coupled with high coal prices, tight supply, and high prices in the international fertilizer market, fertilizer manufacturers face increased production pressures, which further raises the uncertainty surrounding fertilizer supply and market prices this winter and next spring. Recent Trends in the Fertilizer Market (I) Urine prices rose by 10% on a monthly basis, while overall fertilizer prices showed an upward trend. According to data provided by the China Agricultural Means of Production Distribution Association on October 18, the national average wholesale prices for urine, 64% domestic diammonium phosphate, imported potassium chloride, and 45% domestic chlorinated compound fertilizers were 2,969.4 yuan/ton, 3,743.0 yuan/ton, 3,300.9 yuan/ton, and 3,116.5 yuan/ton respectively. On a weekly basis, these prices increased by 3.4%, 3.4%, decreased by 4.9%, and increased by 3.7% respectively ； Month-on-month, they increased by 13.6% and 5.5% respectively, decreased by 4.6%, and increased by 5.6% ； They increased by 69.3%, 42.8%, 72.6%, and 37.1% respectively compared to the same period last year. (II) Fertilizer exports continue to rise; international market prices far exceed domestic ones. According to statistics from China’s General Administration of Customs, in September, fertilizer exports reached 3.329 million tons, a year-on-year increase of 16.8% ； The value of fertilizer exports reached $1.364 billion, a year-on-year increase of 104.5%. 649,000 tons of fertilizers were imported that month, a year-on-year decline of 52.0% ； The import value was $212 million, a year-on-year decrease of 35.8%. Urea prices overseas are at record highs. At the beginning of October, the bidding price for urea in India was about 1,000 yuan per ton higher than the current domestic factory price. Some diammonium phosphate manufacturers still have export orders to fulfill, with export prices around $635 per ton, which is 10% higher than domestic prices. Rising international market prices have boosted domestic fertilizer manufacturers’ willingness to export. Even though policies aimed at ensuring supply and stabilizing prices have restricted exports for those companies that enjoy preferential raw material access, fertilizer exports in September were still significantly higher than in the same period last year. (III) Significant decline in social inventory of fertilizers: Due to a sharp increase in fertilizer exports and rising raw material prices, various entities have reduced their inventory levels, resulting in a noticeable drop in inventories among manufacturing companies, distribution firms, and ports. From the perspective of manufacturers, as of the end of September, China’s urea producers had inventory amounts of around 448,000 tons (in physical terms; the same applies hereafter), a decrease of 63,000 tons compared to the previous year, representing a decline of 12.4% ； By the end of August, the inventory levels of ammonium diphosphate and ammonium monophosphate producers in China had decreased by 12.5% and 3.6% respectively compared to the same period last year. Looking at the inventory levels of distribution companies, the overall fertilizer inventory held by agricultural input enterprises within the national supply and marketing cooperative system at the end of August was roughly on par with that of last year; however, the inventory of urea and potassium fertilizers decreased by 9.3% and 19.7% respectively on a year-on-year basis. Looking at port inventories, due to tight international supplies of potash fertilizer and delays in shipments by foreign suppliers, the inventory of potassium chloride at China’s major ports on October 9 was 2.172 million tons, a decrease of 878,000 tons compared to the previous period, representing a decline of 28.8%. (IV) The dual controls on energy consumption and tight coal supplies affect the supply of fertilizers, with a significant impact on urea production. According to monitoring by the **Statistics Bureau, in the early part of October, the prices of anthracite (washed medium lumps) and liquefied natural gas in China were 1,930.0 yuan per ton and 5,902.1 yuan per ton respectively, representing year-on-year increases of 114.4% and 114.9% respectively. Coal-based urea manufacturers account for 80% of the country’s urea production capacity, while gas-based urea manufacturers account for 20%; the costs associated with coal (or gas) and electricity make up about 85% of the total production costs of urea. It is estimated that coal prices this year have driven urea costs up by over 1,100 yuan per ton on a year-on-year basis. Yunnan’s phosphate fertilizer production has decreased by 10%. Yunnan Province accounts for 25.5% of the country’s total phosphate fertilizer production. In accordance with Yunnan Province’s current power rationing measures, it is preliminarily estimated that production of diammonium phosphate in the province will decline by around 10% from the fourth quarter of this year to the first quarter of next year (a reduction of approximately 500,000 tons). Some facilities producing potash fertilizer have reduced production or shut down. The main heat source for potassium fertilizer production plants is natural gas; since September, due to restrictions on gas usage, some potassium sulfate manufacturers that use the Mannheim process have reduced their production or ceased operations. Taking Salt Lake Co., Ltd. as an example, in line with the requirements for dual control of energy consumption, its power load was kept below 100,900 kilowatts; some key equipment was shut down, resulting in a daily production reduction of potassium chloride of around 1,800–2,500 tons, which represented more than 10% of its total daily output. Small and medium-sized compound fertilizer plants have low operating rates or have even ceased production. Due to the rapid rise in prices of basic fertilizers, coupled with concerns about future price drops, some compound fertilizer manufacturers have insufficient supplies, resulting in partial production shutdowns. According to the arrangements of relevant associations, some compound fertilizer plants in provinces such as Hebei and Heilongjiang with a production capacity of less than 40,000 tons are unable to operate and are mostly shut down. Farmers’ willingness to apply fertilizers is declining, leading to increased pressure to use fertilizers next spring. (1) Farmers may reduce their fertilizer usage. This year, the prices of various types of chemical fertilizers have risen significantly compared to the previous year, raising the cost of fertilization for farmers. It is estimated that the cost of fertilizers per mu of land has increased by over 100 yuan on a year-on-year basis, while the income generated from grain production per mu has increased by 20 yuan (based on an output of 800 kilograms per mu); thus, the input and output are not in proportion. For large-scale growers, they may opt to use fertilizers with lower nutrient content during autumn and winter planting in order to reduce costs ； For small farmers, there is already a phenomenon in some areas of growing \"hygienic fields\" without the use of chemical fertilizers, which requires close attention. (II) Fertilizer use may increase in some areas next spring. Due to the heavy rainfall in regions such as Shanxi, Hebei, and Shandong recently, floods have occurred in some areas, resulting in the corn that has not yet been harvested there becoming soaked and slowing down the process of clearing the fields. Even though the corn harvesting is complete after the rain, the land remains too wet, so drainage is needed to reduce moisture; therefore, wheat sowing cannot be carried out in the short term. It is expected that autumn sowing in these regions will be delayed until late October or early November, and the demand for fertilizers will also be postponed accordingly. Late sowing this autumn may result in poor seedling conditions this winter. Next spring, it will be necessary to apply more quick-acting fertilizers to promote growth and strengthen the plants; thus, the amount of chemical fertilizers used next spring may increase to some extent. Suggestions: (1) Further advance efforts to reduce the use of fertilizers while improving their efficiency for crops such as wheat. Against the backdrop of rising fertilizer prices, it is necessary to increase publicity regarding these efforts to reduce fertilizer use and improve its efficiency. We should promote the use of soil-testing-based fertilization methods, as well as formulated and blended fertilizers, in order to make fertilization more targeted, reduce nutrient input per unit area, and lower the costs associated with fertilizer use for farmers. Estimates show that for wheat, rapeseed, and horticultural crops, compared to conventional compound fertilizers, using 100 kg of this formulated fertilizer results in a reduction of input costs by approximately 5–6 yuan for each unit decrease in nutrient content. This can help to somewhat lower the fertilization costs borne by farmers. (II) Strengthen information monitoring of enterprises eligible for policy incentives. Currently, global energy supply shortages and sharp rises in raw material prices are having a significant impact on international fertilizer production. Major fertilizer producers such as CF Industries (USA), Yara International (Norway), Borealis (Nordic countries), and OCI (Netherlands) have already announced production halts or cuts. Some large nitrogen fertilizer producers are also reducing their output. The prices of fertilizers in the international market are considerably higher than those in China, leading to a strong willingness among fertilizer manufacturers to export. However, in accordance with China’s mechanism for ensuring the supply and stabilizing prices of fertilizers, those fertilizer enterprises that benefit from preferential policies regarding electricity and gas usage, energy consumption controls, voluntary emission reductions, and preferential rail transportation services must commit to ensuring the supply in the domestic fertilizer market. For such enterprises, it is necessary to strengthen information monitoring and implement policies aimed at ensuring the supply of fertilizers and stabilizing their prices. This ensures that preferential policies serve to safeguard domestic supply, rather than being used to fill gaps in the international fertilizer market for the purpose of reaping excessive profits. (III) Nitrogen fertilizer enterprises continue to be subject to the policy of a 20% cap on electricity price increases. In accordance with relevant requirements from the **National Development and Reform Commission, starting October 15, there will no longer be a 20% limit on electricity price increases for energy-intensive enterprises. Nitrogen fertilizer manufacturers fall into the category of high-energy-consuming industries; if the cost of electricity used in their production rises further, the production costs of nitrogen fertilizers will increase as well. This puts additional pressure on these companies, and it may affect their capacity to produce nitrogen fertilizers. As an important means of production for ensuring food security and stabilizing people’s livelihoods, it is recommended that the electricity consumption of fertilizer-producing enterprises that use large amounts of energy, such as those that produce nitrogen fertilizers, continue to fall under the category of electricity rates subject to a 20% increase cap, or be managed in accordance with the regulations applicable to electricity used for livelihood-related purposes.