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Policy risks remain the main risk for the fertilizer industry. Since January 1, 2008, domestic DAP production has been eligible for a VAT exemption, putting an end to the situation in which DAP was the only type of fertilizer that did not benefit from such exemptions (this was also the main reason why we believed in the first half of 2007 that the phosphate fertilizer industry should not be regulated). The introduction of value-added tax was driven by the continuous rise in DAP prices both domestically and internationally: currently, domestic prices have risen by 70.8% compared to the beginning of 2007. Meanwhile, the U.S. DAP ex-ship price has risen by $680 per ton, representing a 165% increase compared to the beginning of 2007. The exemption from value-added tax is beneficial for the DAP industry and its key listed companies: according to our calculations, this exemption can increase the profits of the DAP industry by around 625 million yuan, while the EPS of the major listed companies Liumei Chemical and Hubei Yihua will increase by approximately 0.249 and 0.093 yuan respectively. However, we believe that since the exemption from DAP value-added tax is intended to support agricultural development and stabilize fertilizer prices, once the industry enjoys preferential policies, there is a risk that DAP prices will be regulated, which in turn could affect the prosperity of the domestic DAP industry. Policy risk remains the main risk for the fertilizer industry. This post was last edited by zhangchaosen on 2008-1-30 21:48]