2017: Fertilizer prices will soar! ?

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2017: Fertilizer prices will soar! ? Author/Source: Agricultural Inputs Herald Date: 2016-12-13 Clicks: 13 Many people are concerned about what the price of fertilizers will be when they are used. The author finds it difficult to answer this question, as it’s not clear whether there is timely macro-control in place and to what extent such control is effective. If the current pace of regulation remains unchanged, fertilizer prices could see a sharp rise next year! 　　Last week, urea prices stopped falling and started to rise, while monoammonium phosphate saw a steady increase in price; the export price in Hubei exceeded 1,900 yuan per ton. Potash fertilizers were also in short supply. The rapid increase in fertilizer prices gives the impression of a bubble, exacerbating divisions in the market. Objectively speaking, however, current fertilizer prices are still at historical lows. As for how things will develop in the future, the author believes it will no longer depend on the fertilizer industry itself, but rather on how external constraints change. There are specifically three aspects of constraints. 　　The first is the constraint of demand. First is the agricultural demand. This year marks the beginning of China’s supply-side reform in agriculture, and it will remain a key focus for work next year as well. The degree of marketization of agricultural product prices will increase further, and the effects of these reforms are likely to become apparent in the second half of next year; therefore, the overall demand for fertilizers in the first half of the year is not optimistic. Next is the demand from industry. With the economic recovery, demand for fertilizers in industry is expected to rise slightly. Next is imports and exports. Exports of urea are likely to decline significantly, while exports of phosphate fertilizers will show a steady increase. Due to the price difference between domestic and international markets, imports of potassium fertilizers will rise in the first quarter. 　　Overall, the total demand for fertilizers will remain relatively stable and does not constitute a key factor determining whether prices can continue to rise. 　　The second is the constraint of costs. After 330 working days of coal production resuming, the conditions that drove up coal prices no longer existed; a decline in prices had become the general consensus. As a result, the factor that prevented fertilizer prices from rising due to increases in energy prices was removed. 　　Third are the transportation constraints. China’s nitrogen fertilizer manufacturers are mainly located in Hebei, Henan, Shanxi, Shandong, Inner Mongolia, and Xinjiang, while many nitrogen fertilizer plants in areas that consume these fertilizers have been shut down. Phosphorus fertilizer production is concentrated in Hubei as well as Yunnan, Guizhou, and Sichuan, with the land used for such production found in the Northeast, Northwest, and North China. Potassium fertilizer production is primarily centered in Xinjiang and Qinghai. It is evident that for China’s fertilizer industry to achieve a balance between production and consumption, efficient logistics are essential. The current transportation problems have prevented fertilizer manufacturers from getting raw materials in and selling their products out; therefore, the ability to improve transportation capacity has become a key factor in determining whether fertilizer prices can continue to rise in the future. 　　The author preliminarily believes that the issue of capacity constraints will ease after March next year: once the Spring Festival travel season comes to an end ； Coal transport volume has declined ； New railway carriages have been put into operation, increasing railway capacity ； New trucks have been put into operation, increasing road transport capacity. 　　Fourth is the constraint of environmental protection. Recently, due to the severe fog in North China, some nitrogen fertilizer manufacturers have faced environmental regulations-related issues. With the arrival of the central environmental inspection team in Hubei and CCTV’s exposure of the pollution issues at two phosphate fertilizer manufacturers, the operating rate of phosphate fertilizer plants in Hubei dropped significantly. As a result, the price of phosphate fertilizers is no longer determined by costs, but rather entirely by the intensity of environmental enforcement measures. 　　Chinese companies have accumulated a huge amount of environmental debt, and it is impossible to pay off all of it overnight. I believe **understands this as well; therefore, no shock therapy will be adopted. However, environmental inspections and temporary production restrictions in areas suffering from severe pollution will become the new norm. The prices of nitrogen and phosphorus fertilizers will also fluctuate depending on the intensity of environmental enforcement efforts. 　　Based on the above analysis, the author believes that the current rise in prices of all fertilizer products is not driven by demand, but rather by constraints on supply; the problem of overcapacity has not been fundamentally resolved. 　　Looking at different products, whether nitrogen fertilizer prices can continue to rise in the later stage depends on transportation and environmental regulations; markets far from the production areas have greater opportunities ； Phosphatic fertilizers are subject to environmental regulations, and there is still room for price increases in the short term ； Potash prices depend on transportation and will remain on the rise until March. 　　In summary, if the current pace of regulation remains unchanged, fertilizer prices are very likely to rise sharply next year! (Yu Lei)