Rising costs and reduced production capacity – can small fertilizer factories still survive?

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Rising costs and reduced production capacity – can small fertilizer factories still survive? Author/Source: China Agri-Media Date: 2016-12-19 Clicks: 56 Compared to last year, winter storage levels at this time this year are only 30%-40%, with overall stock levels dropping by about 50%. This is mainly due to the different market conditions from previous years, as fertilizer prices have continued to rise. 　　Dealers remain highly cautious; one reason is the low grain prices, which could lead to changes in the planting structure next year ； Second, the economic benefits resulting from winter stockpiling in recent years have not been satisfactory, with severe losses occurring. Fertilizer prices are expected to rise next year, with the market situation improving compared to this year. 　　It is currently the season for winter stockpiling, but according to reports from various regions, the volume of goods stocked for this winter may decrease. Dealers are more cautious, and overall stock levels have dropped by around 50% compared to last year. 　　Zhou Changtai, market director of the Fertilizer Division at Luxi Chemical Group Co., Ltd., told reporters: “At present, rising prices of nitrogen, phosphorus, and potassium have brought positive trends to the fertilizer market. The price of diammonium fertilizers is changing on a daily basis – it has increased by 80–100 yuan per ton compared to last month, and by 50–80 yuan per ton compared to last week; in the past two days alone, it has risen by another 20–30 yuan per ton.” 　　Urea has maintained a stable trend due to the rise in coal prices several months ago. Even more reassuring is the fact that compound fertilizers remained low in price before October, without any positive influences; in November, however, they increased by 100 yuan per ton as a result of various factors such as rising raw material costs, increases in the prices of various fertilizers, and the cancellation of favorable policies. ” 　　Dealers remain cautious. At present, various regions have entered the winter storage period, but the cash flow situation for dealers is not optimistic; this is mainly due to the large amount of credit sales made in the earlier stages, coupled with low grain prices this year, which makes it difficult to recover funds. Zhou Changti believes that compared to last year, the winter storage levels at this time this year are only 30%-40%, mainly due to differences in market conditions from previous years. 　　At this time last year, dealers reported a decline in fertilizer prices, with the market operating as usual; although there was no large-scale stockpiling, winter reserves remained relatively stable. This year, however, the prices of nitrogen, phosphorus, potassium fertilizers as well as compound fertilizers have all risen, and they continue to increase, which has made dealers more cautious about entering the market. 　　So price is a positive factor in one sense, but they are not sure what changes will occur in fertilizer prices during the peak season for spring plowing, as there are many uncertainties in the market. So at present, the situation regarding winter storage is not optimistic. 　　Another main reason is that the biggest competitor in the Northeast region is compound fertilizer. To assess the market sales of compound fertilizer this winter, it is necessary to compare its arrival price with that of diammonium phosphate; if the difference between the two arrival prices is 400 yuan per ton or more, it indicates that the sales volume of compound fertilizer could be significant. Conversely, compound fertilizers are relatively harder to sell. This year, the price of compound fertilizers upon arrival at the ports differs by 200–300 yuan per ton compared to that of diammonium fertilizers. There is significant pressure on the sales of compound fertilizers, and this is one of the reasons why distributors are waiting to see what will happen. 　　“For Luxi Chemical, winter stockpiling last year was relatively good, with normal levels of inventory and purchases, but the current stock level this year is 50% lower than that of last year, which is not ideal. In fact, there are many reasons for the cautious attitude among distributors, with two main ones: first, low grain prices mean that farmers are unsure about what to plant next year, and the planting structure may change; this makes distributors hesitant to purchase goods as they lack confidence. Secondly, the economic benefits resulting from winter stockpiling in recent years have not been satisfactory; many dealers operate at a loss, which makes it difficult to alleviate the cautious attitude among them. ” 　　The market may improve next year. This year has been a year of fluctuations for the fertilizer market; with the successive cancellation of various incentives related to electricity, transportation, gas, and taxes, the production costs of fertilizers have increased, and raw material prices have also risen. These factors have had both positive and negative effects on the fertilizer market. Zhou Chongtai believes that for large enterprises, even if production costs increase, the influence of brand reputation means that farmers can accept a slight rise in prices. 　　However, the situation is not optimistic for small businesses. Taking urea as an example, rising costs have led to higher prices for urea, and some small manufacturers cannot afford these increases; as a result, they produce 2/3 less urea than in previous years, which affects their sales volume. Furthermore, environmental pressures have also been a major challenge for businesses in recent years. Under environmental pressure, the release of production capacity has decreased, with more companies facing restrictions on production or even having to suspend operations. Larger enterprises with relatively well-developed environmental protection facilities are not affected by this, but it represents a severe challenge for smaller businesses. 　　During the phase when capacity reduction was being effectively implemented, many companies also reduced their production by 50%-60%. Looking at future market trends for now, Zhou Changtai said that there might be localized shortages. “Dealers are not purchasing goods at the moment, but there will be a surge in purchases later on, triggering a wave of activity in the market. There is localized strain when demand increases, but it is not necessarily tied to a specific brand or region. It seems that fertilizer prices will generally rise next year, with the market situation improving compared to this year, as the prices of chemical products have been rising this year. As for other factors, it depends on **policy considerations; things will get better for large enterprises, as they have access to supplies and raw material reserves, and can fully utilize their production capacity. Meanwhile, small enterprises will face constraints such as environmental regulations, which will prevent an increase in their production levels. ” (Jiang Meiyi)