Recovery in the fertilizer industry

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The fertilizer industry is beginning to recover from its low point. After a prolonged period of continuous price declines, since late July, as domestic exports have increased and factory utilization rates have risen, prices of urea and phosphate ammonium in the domestic market have stabilized or even seen a slight increase; thus, the bottom of this year’s fertilizer market cycle has been reached. The fertilizer market seems to be starting a climb back from its bottom. Since the beginning of this year, due to the impact of the financial crisis, as well as factors such as rising production capacity and falling exports, prices of various products in the domestic fertilizer market have been declining continuously. By June to July of this year, the ex-plant price of urea at some companies dropped below 1,500 yuan per ton (the same unit is used throughout). Similar to urea products, due to an excessive increase in production capacity, the market for phosphatic ammonium in China also showed a downward trend during the first half of the year; prices failed to recover significantly, with the ex-factory price of 64% grade dropping from 2700 yuan at its peak to 2000 yuan. Affected by the decline in prices of these two main products, the compound fertilizer market saw a decrease in both volume and price from May to June. Taking 45% sulfur-based compound fertilizer as an example, the highest ex-factory price at the beginning of the year was around 2,700 yuan, while by the end of June the lowest ex-factory price for this type of fertilizer dropped to 1,900 yuan, a decrease of 800 yuan. Under these circumstances, the operating rate of compound fertilizer manufacturers dropped significantly in May and June this year, reaching only 30%. After entering July, with the adjustment of export tariffs and the emergence of demand from international markets, the domestic urea market began to show signs of improvement driven by exports. In the Shandong region, export orders began to increase in July, and purchasing volume in the industrial market also rose. As a result, urea prices stopped falling and stabilized, even showing a slight rebound; the current ex-factory price is around 1,550 yuan. Although the prices of urea in Hebei, Henan, Hunan, and Hubei have risen slowly, they have now stabilized and are showing a trend of increase. Faced with low market prices and the expected demand for fertilizer for wheat planting in September, compound fertilizer manufacturers are now starting up operations and purchasing raw materials. It is reported that this year, the long-dormant compound fertilizer industry has finally begun to recover. Driven by large domestic compound fertilizer manufacturers, the average operating rate of the domestic compound fertilizer industry has risen from less than 30% at the end of May to around 50–60% at present; in regions such as Shandong, Jiangsu, and Hubei, some well-known brands have seen their operating rates return to 70–80%. The commencement of operations and production preparations by compound fertilizer manufacturers have improved the situation in the market for raw fertilizers; not only has the price of urea stabilized and started to rise, but the price of phosphoric acid is also increasing. According to manufacturers, since mid-July, the shipment situation of monoammonium phosphate has improved significantly compared to earlier periods. In particular, compound fertilizer producers in regions such as Shandong, Henan, and Hebei began to purchase and stock up on monoammonium phosphate in advance for autumn fertilizer production, which greatly reduced inventory pressures; in some cases, there was even a short-term shortage of supply. Under these circumstances, some companies have begun to raise their ex-factory prices slightly. As of early August, the mainstream ex-plant price of 55% powdered monoammonium fertilizer in the domestic market was between 1,550 and 1,630 yuan, representing an increase of 30 to 50 yuan compared to previous periods. Although the fertilizer industry is showing signs of recovery amid current difficult conditions, the overall situation of oversupply remains unchanged, which is bound to pose significant challenges for the industry. The manager of a compound fertilizer company in Shandong told reporters that, when it comes to compound fertilizers, May to July is historically the most difficult period; however, even more challenging times are likely to come in September and October this year, as competition will be fierce, and one cannot afford to take it lightly.