This article was originally published in a slightly different form on Feb. 20 at Speciality Chemicals Magazine.
According to market intelligence firm CCM, the year 2017 will show a significant decrease in the output, demand, as well as the export volume of fertilisers in China. The main factor, that will have a huge impact on the trend, is the effort of China’s government in implementing new environmental protection measurements.
The fertiliser industry in China showed a weak performance throughout the year 2016. The first positive signs of a rebound of the low price appeared with the traditional winter stockpiling season in the end of the year. Hence, many industry insiders are predicting a price rebound from that drop in 2016, backed up by rising costs of production as well.
However, CCM states, that the whole market will remain on a low level in China in 2017, mainly due to the continuing process of de-capacity.
The overall market situation in 2017 will be likely marked by five main factors: The output will decrease, the demand is going to be reduced, the export sector will also be weak, the price will increase slightly due to rising costs, and the business will be overall influenced by the increased effort in environmental policies in China.
The five main factors for 2017
All these factors will be elaborated in the following paragraphs.
According to CCM’s research, the capacity of fertilisers in China reached the amount of 131.67 million tonnes in 2016. Furthermore, the output stated an amount of 80.11 million tonnes. Looking at the comparable low demand of only 66.10 million tonnes, an excess production of more than 14 million tonnes becomes obvious. This overcapacity of fertilisers in China will be a big problem in 2017, forces many enterprises to lower the production because of cheap prices and very low profitability. The slowed down operation rates will lead to a lower output in 2017.
The domestic demand for fertilisers in China is going to reduce as well. First of all, China is decreasing the area for agricultural use, leading to less planting area and therefore to lower need for fertilisers. The reduced planting area is the result of decreasing prices for agricultural products and the low enthusiasm of China’s farmers to grow more plants. Furthermore, China’s government has revealed the plan of zero increase in fertiliser usage. Many methods and testing are going on to increase the effectiveness of using fertilisers and be able to use less of them. While the tests are showing first results, the demand for fertilisers will further go down. Particularly several crops in the north and south regions of China have been improved in needing fewer fertilisers, the demand will be on a lower level for the year 2017 once more.
China has announced the cancellation of some favorable policies for the fertiliser industry. This leads to higher costs for the Chinese producers and therefore less competitive advantage in 2017. Only a few producers were able to find their export market yet, leaving many Chinese companies behind. Also, the international fertiliser capacity will be increased in 2017, leading to a lower export volume in general and even an expected decrease of around 10% in China, according to CCM.
The prices of fertilisers in China are going to show a rebound in 2017 and rise to a certain extend. Price rises up to almost USD60/t are a possibility. The driving factors for this development are the increasing prices of raw materials for fertilisers, like phosphate ore, sulfur, urea, and liquid ammonia. Also, the transportation fees for the materials will increase in 2017, as well as the costs for coal and electricity.
The last factor, influencing the fertiliser business in China mainly in 2017, is the stricter environmental policy. Many manufacturers are already facing production reductions and shutdowns, due to the measurements of China’s environmental bureaus. Many producers also have to implement expensive waste disposal treatments, leading to increasing costs and reduced output. This development will likely change the demand and supply situation in China throughout the year 2017.
CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets.
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