The fertilizer industry also needs to accelerate the phasing out of outdated production capacity

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Can zero tariffs bring about a complete turnaround? Affected by various factors such as insufficient domestic demand and overcapacity, the domestic fertilizer industry is facing operational difficulties. Reports suggest that the China Petroleum and Chemical Industry Association has advised the Ministry of Industry and Information Technology to abolish the seasonal tariff differences for fertilizer exports and implement a zero-tariff policy. 　　Prior to this, the State Council announced at the end of June that export tariffs on certain fertilizer products would be adjusted effective July 1 this year. 　　Public information shows that during the previous round of adjustments, the relevant authorities removed special export tariffs on certain fertilizers and fertilizer raw materials, including yellow phosphorus, phosphate rock, synthetic ammonia, phosphoric acid, ammonium chloride, superphosphate, and binary compound fertilizers – a total of 27 products. 　　In addition, the peak and off-peak periods for imposing export tariffs on three types of fertilizer products—urea, monoammonium phosphate, and diammonium phosphate—have been adjusted. The applicable period for the export tariff rate on urea during the off-peak season has been extended by one month, while that for monoammonium phosphate and diammonium phosphate has been extended by one and a half months. 　　Some industry insiders interpret this as **an important measure to alleviate the severe oversupply in China’s fertilizer industry by using exports to absorb the excess domestic production capacity. Now, export tariffs have been mentioned again; encouraging exports through zero tariffs is considered a more thorough way of self-rescue. 　　Once zero tariffs are implemented, all exports of certain fertilizer raw materials and products that were previously subject to taxes will be completely exempt from such taxes. This includes the 20% export tax still in effect as of July 1 on yellow phosphorus, as well as the provisional export taxes of 10%–35% currently applied to other phosphorus compounds and phosphate ores. Fertilizer products such as synthetic ammonia, phosphoric acid, ammonium chloride, superphosphate, and compound fertilizers (including those for industrial use) will all be subject to a unified provisional export tax of 10%. 　　In fact, since the fourth quarter of last year, the problem of overcapacity in industries such as domestic nitrogen fertilizers and phosphate compound fertilizers has become increasingly apparent. Product prices have remained generally low, and the operating rates have dropped significantly, staying around 70%. 　　However, not all companies are facing severe losses. Our reporters found in their interviews that some companies with relatively advanced technical capabilities are operating at full capacity to produce goods, and they are expanding their profit margins by utilizing by-products of fertilizers. 　　“Although the price of fertilizers is much lower now than before, and there isn’t much profit margin in fertilizer products themselves, additional profits can be obtained by producing by-products. Taking the production of sulfuric acid, a raw material for fertilizers, as an example, although the cost of producing one ton of sulfuric acid is 300 yuan, the current market price for sulfuric acid is around 200 yuan per ton. However, its by-products, such as steam and iron slag, can be sold; the iron slag generated from the production of one ton of sulfuric acid can be sold for nearly 200 yuan, so there is still a profit margin. ”Du Shuangjiang, executive editor of China Fertilizer Network, said in an interview with a reporter from China Economic Times that although the profit margins of most fertilizer manufacturers have been significantly reduced compared to before, taking into account the value of by-products, there has been no situation of overall losses. 　　Step up efforts to phase out outdated facilities and optimize the industry structure. Following rapid expansion during periods of market prosperity, the issue of overcapacity in the fertilizer industry is becoming increasingly prominent. The previously released \"Plan for the Adjustment and Revitalization of the Petrochemical Industry\" designated the fertilizer industry as a key area for phasing out outdated production capacity within the petrochemical sector. By consolidating larger fertilizer enterprises at the expense of smaller ones and replacing existing production capacity, it aims to eliminate those facilities that use outdated technologies, cause severe pollution, and make inefficient use of resources. 　　Those interviewed by reporters are concerned that implementing a zero tariff on fertilizer exports could lead to further expansion of production capacity, which is already severely oversupplied. 　　By the end of 2008, China had become the world’s largest producer of nitrogen and phosphate fertilizers; with the exception of potassium fertilizers, which still needed to be imported, there was an excess of other types of fertilizers to varying degrees. 　　Data shows that this year, the new nitrogen fertilizer production capacity across the country will be around 4.3 million tons, bringing the total capacity to 63 million tons. Meanwhile, the total amount of chemical fertilizers used in industry and agriculture nationwide is between 52 and 53 million tons, meaning there will be a surplus of over 10 million tons. 　　Along with overcapacity comes a continuous decline in demand for fertilizers abroad. Amid the financial crisis, the planting area for almost all crop varieties worldwide has shrunk, leading to a sharp decline in demand for fertilizers; as a result, China’s fertilizer exports will face significant price pressures. 　　In Du Shuangjiang’s view, in the absence of price and cost advantages, it is better to intensify efforts to phase out outdated production capacity and optimize the industrial structure, rather than simply trying to absorb domestic overcapacity by boosting exports. 　　“The production of nitrogen fertilizers consumes large amounts of coal; therefore, the export of fertilizers is considered an indirect form of coal export, and coal is a **strategic energy resource. Moreover, even if tariffs are removed, natural gas has no advantage, as the cost of producing synthetic ammonia from natural gas drops significantly when oil prices fall. ”A source from Yihua in Hubei told reporters that the sharp drop in international natural gas prices has **reduced the production costs of urea there, making China’s urea more cost-competitive compared to products made from coal as the main raw material. 　　Du Shuangjiang believes that the problems facing China’s fertilizer industry cannot be resolved in a short period of time; it will take at least three to five years. With current export controls remaining in place, relevant authorities should help companies find other alternatives, such as providing financial support for technological upgrades. 　　“Compared to foreign fertilizer production technologies, China’s processes are relatively backward. Taking the efficiency of fertilizer utilization as an example, the international average is over 75%, whereas in China it is only 30%–35%. ”He said. 　　It is reported that while seeking policy support from the Ministry of Industry and Information Technology for the export of fertilizer products, the China Petroleum and Chemical Industry Association also recommended that it be necessary to control the trend of uncontrolled and rapid growth in excess production capacity, prevent new redundant constructions, and accelerate the phasing out of outdated production capacities – particularly through the implementation of environmental and credit-related measures.