CITIC Securities: Restocking Demand Overlaps with Autumn Fertilizer Peak Season, Phosphate and Nitrogen Fertilizer Prices Bottom Out and Rebound

CITIC Securities released a research report stating that in the second half of 2023, with the support of autumn fertilizer preparation, fertilizer use, and the launch of national and winter reserves, the prices of phosphate and nitrogen fertilizers are expected to rebound after bottoming out. In the second half of 2023, domestic fertilizer demand is concentrated in autumn fertilizer preparation and winter reserves, with a focus on high phosphate, accounting for about 30-40% of the annual demand. To avoid the risk of fertilizer preparation, the dealer's fertilizer preparation cycle has been shortened, and the release of demand is expected to be more concentrated, locked in August-September and December.

Main points from CITIC Securities are as follows:

1. China's nitrogen and phosphate fertilizer industry continues to optimize, and the dependence on potassium fertilizer imports has long exceeded 50%.

In recent years, China's fertilizer industry has undergone supply-side reforms. Through environmental rectification and urban relocation, excess capacity within the industry has been gradually phased out. By controlling both supply and demand, the capacity utilization rate of the fertilizer industry has rebounded, and the industry's structure has been gradually improving. At the same time, China's nitrogen fertilizer, as a coal chemical product, is restricted by energy consumption and carbon emissions, and new capacity is regulated. Phosphate products are included in the national restricted capacity list, and the 14th Five-Year Plan will also strictly limit new capacity. The supply structure of China's nitrogen and phosphate fertilizer industry is expected to continue to optimize. Unlike nitrogen and phosphate fertilizers, China's potassium fertilizer supply is insufficient, with an import dependence of over 50%. In 2021, the production of nitrogen, phosphate, and potassium fertilizers in China was 37.9754 million tons, 10.3904 million tons, and 6 million tons, respectively, and the production has been relatively stable in recent years.

2. Grain futures prices rise, international potassium fertilizer supply tightens, South American restocking demand is strong, and potassium fertilizer prices are expected to enter an upward channel.

In July, Russia officially announced the suspension of the "Black Sea Grain Export Agreement", which is expected to reduce global grain and potassium fertilizer supplies. Recently, CBOT wheat and corn futures prices have rebounded sharply, which is expected to boost the demand for agrochemical products. On the supply side, there was a recent strike at Canadian ports, and global potassium fertilizer giant Nutrien reduced production. In addition, the recent South American market has been strongly influenced by the strong demand during the soybean season, and potassium fertilizer demand continues to recover. Restocking demand is strong, and a new contract in India is expected to be signed. The recent assessment of granular potassium chloride prices in Brazil is $330-340/ton CFR. The domestic potassium fertilizer market price has recently risen by 50-100 yuan/ton, with the market reference price for Qinghai Salt Lake's 60% crystal potassium product being 2,700 yuan/ton.

3. Restocking demand overlaps with the peak season for autumn fertilizer preparation, cost-side support strengthens, and phosphate and nitrogen fertilizer prices bottom out and rebound.

According to Zhuo Chuang Information, in the second half of 2023, with the support of autumn fertilizer preparation, fertilizer use, and the launch of national and winter reserves, the prices of phosphate and nitrogen fertilizers are expected to rebound after bottoming out. In the second half of 2023, domestic fertilizer demand is concentrated in autumn fertilizer preparation and winter reserves, with a focus on high phosphate, accounting for about 30-40% of the annual demand. To avoid the risk of fertilizer preparation, the dealer's fertilizer preparation cycle has been shortened, and the release of demand is expected to be more concentrated, locked in August-September and December. In terms of inventory, according to Baichuan Yingfu, the inventory of domestic monoammonium phosphate, diammonium phosphate, and urea industries was at historically low levels at the end of July. The recent rise in phosphate and nitrogen fertilizer prices has also increased the industry's restocking demand. In terms of cost, the recent prices of nitrogen fertilizer and phosphate fertilizer raw materials, synthetic ammonia, and sulfur for phosphate fertilizer have risen, and the prices of phosphate rock and coal have bottomed out and stabilized, strengthening the cost-side support for phosphate and nitrogen fertilizers.