Will fertilizer prices rise? These factors are key...

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Will fertilizer prices rise? These factors are key... Author/Source: Agricultural Inputs News, Date: 2016-12-20, Clicks: 17. Since October, fertilizer prices have risen sharply; the price of urea and monoammonium phosphate has increased by nearly 400 yuan per ton, while the price of diammonium phosphate and potassium fertilizers has increased by 300 yuan per ton. The reasons for the sharp increase were costs in the early stage, and environmental protection and transportation issues later on. The sharp rise in coal prices since September has led to a significant increase in the cost of urea. Meanwhile, the depreciation of the RMB has caused higher prices for imported sulfur and potash fertilizers, which in turn has driven up the prices of domestic phosphatic and potash fertilizers. Therefore, the price increases that occurred earlier were a normal adjustment to cover these rising costs. To date, the cost pressures associated with nitrogen and phosphorus fertilizers as well as imported potassium fertilizers have eased, and some companies are even starting to make profits. However, the upward trend in fertilizer prices continues to accelerate, and the underlying reasons lie in transportation and environmental protection issues: Transportation: The flow of fertilizers in China follows a pattern similar to that of coal. The restrictions on oversized shipments that came into effect on September 21st have led to severe shortages in railway capacity. With railway resources given priority to transporting coal for power generation, it has become difficult for fertilizers produced in certain areas to be exported, and it is also hard for fertilizer manufacturers in inland areas to obtain the raw materials they need. As a result, these companies are forced to reduce their production levels, thereby decreasing the supply available on the market. According to incomplete statistics, at present, over one million tons of urea in Inner Mongolia, Xinjiang, and Shanxi cannot be transported out, while Qinghai and Xinjiang also have stockpiles of up to 3 million tons of potash fertilizer. 　　Environmental protection: Stricter enforcement of environmental regulations has forced many fertilizer manufacturers to suspend production. Hubei Province is known as China’s phosphorus hub. Since the arrival of the central environmental inspection team, only one nitrogen fertilizer factory remains in operation, while the operational rate of phosphorus fertilizer factories has dropped below 30%. Moreover, due to the severe foggy weather that has recently occurred in North China, factories in Hebei, Henan, Shandong, and Shanxi – provinces that are major producers of urea – have also been forced to reduce or cease production in order to meet emission standards. 　　Although fertilizer prices have rebounded sharply, the above two factors have led to a sharp decline in fertilizer supply. According to the website’s statistics, urea production has recently dropped to 130,000 tons per day, hitting a new low in nearly a decade. This year’s Spring Festival falls in January. If fertilizer production cannot be resumed in the early part of January, then, taking the Spring Festival into account, even if fertilizer prices remain high and the pressures related to environmental protection and transportation are low, the resumption of operations by fertilizer manufacturers will be delayed until late February. By March, it is already the traditional time for preparing and using fertilizers in the northeast and southern regions. Fertilizers are products that are produced year-round and consumed in large quantities; once there is a cumulative shortage, it is impossible to make up for it in the short term, even if there is an overcapacity in production. There are no more urea production enterprises in South China, and the urea supply capacity in East and Southwest China has also declined significantly to the point where it is insufficient to meet local demand. We must face these realities head-on. As the author analyzed in the previous issue, if the current pace of macroeconomic regulation remains unchanged, and given the current level of fertilizer production, there will be a huge gap between supply and demand by the time fertilizers are needed, which could lead to a sharp rise in fertilizer prices! The recent continuous rise in fertilizer prices proves that the author’s analysis was not an exaggeration! 　　Fertilizers are the \"food\" for crops; a sharp rise in fertilizer prices hinders an increase in farmers’ incomes, prevents the proper scaling up of land management (and can even lead to the bankruptcy of those engaged in large-scale farming), hinders reforms on the supply side of agriculture, and undermines food security. It can also significantly raise inflation rates, thereby affecting social stability and the smooth progress of reforms. Therefore, it is necessary to implement targeted macro-control over the fertilizer market. 　　Regarding specific macro-control measures, the following recommendations are put forward: First, in terms of railway capacity, priority should be given to ensuring the transportation of raw materials and products for fertilizer manufacturers, thereby eliminating concerns for these production enterprises ； 　　II. In terms of environmental enforcement, orders to suspend operations should be issued less frequently, and instead, deadlines should be set for corrective actions; these deadlines can be extended until the end of the fertilizer use period next spring ； 　　III. In the event of extreme foggy weather and the implementation of temporary emission restrictions, fertilizer manufacturers that meet the emission standards will not have their production restricted. 　　If we want to avoid a shortage of fertilizers in spring, all three of the above measures are essential! 　　We need clean air and water as well as sufficient food. Environmental issues cannot be resolved in the short term; therefore, while maintaining a strong emphasis on environmental protection, it is more urgent to address food issues at present. If the supply of fertilizers does not see a significant recovery by early January next year, fertilizer prices are very likely to soar, directly threatening agricultural production and the interests of everyone. Therefore, there is little time left to introduce macro-control measures regarding fertilizers; action must be taken without delay! (Yu Lei)