Excess capacity in fertilizer production; companies struggle to cope with market pressures 《Reposted》
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As is well known, the issues related to agriculture, rural areas, and farmers are fundamental problems that affect the overall development of our country’s economy. Under the market economy system, **increasing attention is paid to the issues related to agriculture, rural areas, and farmers**. The fertilizer industry, which serves these sectors, has also received considerable attention and support; various preferential policies have been in place for many years. Thanks to this favorable policy environment, the fertilizer industry has achieved unprecedented rapid development. However, at the beginning of this century, some companies and individuals expressed concern that there was an overcapacity in fertilizer production, and that companies would soon be unable to withstand market pressures. Subsequently, as the fertilizer industry underwent consolidation and there were calls and suggestions to eliminate outdated production capacity, such ideas kept emerging alongside the rapid development of this industry; however, they were often ignored by most companies due to favorable economic benefits. Driven by a series of central macro-control policies, production continued to increase rapidly, ultimately leading to a crisis of overcapacity. In these special times, when the ‘benefits’ of preferential policies meet the ‘monitoring’ driven by market forces, we can’t help but ask: How much longer will this important struggle that has attracted so much attention continue? ” In May this year, the \"Plan for the Adjustment and Revitalization of the Petrochemical Industry Structure\" issued by the State Council outlined the principle of adjusting the fertilizer industry structure by using larger producers to replace smaller ones and through capacity replacement, in order to eliminate production capacities that use outdated technologies and inefficiently utilize resources. Among the capacity reduction targets announced by the National Development and Reform Commission, fertilizers are one of the key areas in the petrochemical industry for phasing out outdated production capacities. To ensure that this structural adjustment and the elimination of outdated production capacity truly yield results, drawing on past experience, it is necessary to accelerate integration within the fertilizer industry, prevent arbitrary expansion of fertilizer production capacity, encourage large fertilizer companies with cost advantages, resource advantages, and advanced production technologies to grow stronger, reduce overall fertilizer production, and achieve a new balance between supply and demand on a more scientific basis. This is also a wise approach for the fertilizer industry to cope with crises and overcome difficulties. “Fertilizer companies have reached their current situation as a result of a range of policies such as preferential electricity prices, coal prices, natural gas prices, and railway transportation costs. In the future, the only way to ensure sustainable development for the fertilizer industry is to operate on a fully market-based basis and eliminate all preferential policies. ”Fan Debiao, head of the Industry Department in the Information and Market Division of the China Petroleum and Chemical Industry Association, was spot-on. Fan Derbiao said that ensuring an orderly supply of fertilizers and regulating their prices has always been a major concern for the relevant authorities; they are worried about fierce market competition leading to insufficient fertilizer supplies, as well as volatile prices that could affect farmers’ purchasing power. Fertilizer companies have long enjoyed preferential policies in terms of electricity prices, transportation, value-added tax, etc., but to truly change the current passive situation, reliance on the \"invisible hand\" of the market is necessary. Fan Derbiao also emphasized: \"We must shift the focus of our fertilizer work in the future. In the initial stage, the emphasis was on production, but now, under the regulation of a market economy, we should pay more attention to the rational and scientific use of fertilizers, and adopt a sustainable development approach to truly promote the healthy development of this industry.\" ” Only through reform can there be development. Recently, the State Council, various ministries and commissions, as well as industry associations have clearly sent out the signal that **\"it is necessary to accelerate the adjustment of industries with overcapacity.\"** It is necessary to determine properly the direction, intensity, and pace of adjustments in order to resolve the prominent contradictions in the industrial structure. Meanwhile, the \"Notice on the Price Formation Mechanism for Fertilizers\" issued jointly by the National Development and Reform Commission and the Ministry of Finance at the beginning of the year accelerated the reform of the fertilizer distribution system. To accelerate the marketization of chemical fertilizers, **revisions and improvements to industrial policies will also be carried out to establish a mechanism for phasing out excess production capacity. Enterprises will be encouraged to use advanced technologies, new processes, and new equipment to upgrade traditional industries, and measures such as the development of high-value-added products will be employed to speed up the elimination of outdated production capacities.
Here is another article: Fertilizer reserves may be established to address overcapacity February 24, 2009, 06:28 Yicai Daily [Large Medium Small] [Print] 0 comments so far. Wang You: Yicai Daily learned from people familiar with the matter yesterday that **relevant authorities are discussing the establishment of fertilizer reserves, with the goal of creating a total reserve of 10 million tons over two years**, 5 million tons of which would be set aside this year. This content is likely to be included in the detailed rules of the Petrochemical Industry Adjustment and Revitalization Plan (hereinafter referred to as the “Petrochemical Plan”), which is still under revision. However, whether a 10-million-ton **fertilizer reserve can be finalized remains to be determined. In its petrochemical planning, China has **clearly identified fertilizer reserves as a key focus. One of the directions outlined in the plan is to improve the system for storing fertilizers during off-peak periods (that is, storing them when demand is low), in order to enhance the capacity to ensure an adequate supply of agricultural inputs. Our newspaper’s reporters have learned that the plan regarding fertilizer reserves is to establish a reserve of 5 million tons by 2009, and to reach a total of 10 million tons by 2010. “Although it was not explicitly stated this time whether this **reserve falls under off-season reserves, it still relates to off-season reserves. ”The aforementioned person familiar with the matter said. On January 12, 2005, the \"Regulations on the Management of Commercial Reserves for Fertilizers during Off-Seasons\" were issued and put into effect. The approach established by these regulations is to rely primarily on distribution companies, while also taking into account large fertilizer manufacturers; the profits and losses associated with the operation of such off-season reserves are borne by the companies that hold them. There are different opinions among various parties regarding why **it is necessary to discuss and improve the issue of seasonal reserves for fertilizers. The aforementioned insider said that **stockpiling** has been one of the considerations for some time, and it is now being introduced amid the formulation of new plans in order to ensure the safety of fertilizer use. “After all, some commercial reserves are considered from the perspective of corporate profits, but things are different at a ** level. ” An analyst at Guojin Securities believes that there are certain risks associated with current commercial reserve holdings. The target for strategic grain reserves in 2007 was 8 million tons, and the target for 2008 was 12 million tons; “but in fact, China’s target for strategic grain reserves was not met last year.” ”The reason for this is that, due to falling fertilizer prices, some companies involved in the distribution of such reserves may worry about taking on excessive storage risks; manufacturing companies may reduce production as a result of losses, and the companies responsible for storing these reserves may not have enough supplies to store. He also said that another possible reason could be the reform of fertilizer prices. In January of this year, fertilizer prices shifted from \"guidance prices\" to \"market-determined prices,\" resulting in significant price fluctuations, which poses concerns for companies that maintain stockpiles. A source from Hubei Yihua (000422.SZ) told the First Financial Daily that there is an overcapacity in phosphate and nitrogen fertilizers, which is likely one of the key reasons for including chemical fertilizers in strategic reserves. “At present, overcapacity in the fertilizer industry is a problem; **this excess production could be addressed through stockpiling, which would help stabilize prices for a certain period of time. For example, when fertilizer prices are too high, some of the reserves are released into the market. ” Disclaimer: This article represents only the author’s personal views and is not affiliated with Phoenix News. Its originality, as well as the accuracy of the statements and content presented in it, have not been verified by this website. This site offers no guarantees or assurances regarding the truthfulness, completeness, or timeliness of this article or any part of its content; readers are advised to use it only for reference and to verify the relevant information on their own
With an overcapacity in fertilizer production, a number of outdated enterprises will inevitably be forced to shut down; perhaps the \"spring\" for fertilizers is about to arrive. A national reserve system for fertilizers should be established; addressing the overcapacity in fertilizer production can only serve as a temporary measure and cannot solve the problem fundamentally.