Fertilizer Market to Experience High-Level Fluctuations

Recently, influenced by the Russia-Ukraine conflict, extreme El Niño weather, increased planting areas, and new policies from major grain exporting countries, international fertilizer prices have been on the rise. This has been transmitted to the domestic market, leading to varying degrees of price increases for urea, phosphate fertilizers, and potash. Industry insiders predict that with the continuous abundance of domestic fertilizer and pesticide production capacity and the stable operation of the agricultural market, the future fertilizer market will experience high-level fluctuations.

Urea Market Remains Active in Off-Peak Season

Lately, the domestic urea market has been particularly eye-catching, showing an active trend even in the off-peak season.

From the supply side, after the spring fertilizer application ends in previous years, agricultural demand usually weakens, leading to a dip in urea prices. Especially this year, with over 4 million tons of new urea production capacity, the market is expected to be further saturated. However, the actual situation is that the total urea production in the first half of the year only increased by 850,000 tons year-on-year. Considering an increase of about 290,000 tons in urea exports, this means that the domestic urea supply only increased by 560,000 tons in the first half of the year.

From the demand side, nearly half of the downstream products of urea are mainly for the agricultural market. Considering the changes in fertilizer usage this year, as well as changes in domestic planting areas and crop structures, the demand for agricultural urea is still on the rise. The demand for urea in sectors like automotive and thermal power is also increasing. Compared to the mere increase of several hundred thousand tons in urea supply, the domestic urea supply and demand are still in a tight balance. Moreover, a recent announcement from India indicates that due to increased exports leading to a rise in rice prices, the country will ban the export of high-grade rice. This will have a significant impact on the global rice market, pushing up grain prices and inevitably increasing the demand for fertilizers.

Phosphate Fertilizer Price Rise is Evident

Urea is the leading product among all fertilizers. The strong rise in urea prices also gives other fertilizers like phosphate a reason to increase their prices.

In the first half of the year, domestic nitrogen and potash supplies both saw year-on-year growth, but phosphate production significantly decreased, with exports also increasing substantially. Data shows that in the first half of the year, the average market price of 55% powdered monoammonium phosphate was 3034 yuan per ton, a decrease of 12.73% from the same period last year. The average market price of diammonium phosphate (64% content) was 3973 yuan, a decrease of 1.60% from the same period last year.

Xiao Li, an analyst at Zhuochuang Information, stated that in the first half of the year, the market prices of monoammonium phosphate and diammonium phosphate peaked at the beginning of the year, continuing the upward trend from the end of last year. This was partly due to the high demand for phosphate fertilizers in the northeastern market during the spring fertilizer preparation period. On the other hand, the prices of sulfur and synthetic ammonia remained high at the beginning of the year, and the supply of ore decreased, driving up the price of phosphate rock and providing some support for the production cost of phosphate fertilizers.

Currently, with the increase in the start-up rate of phosphate fertilizer, sulfur prices have rebounded; the synthetic ammonia market has also rebounded under the influence of urea prices. At the same time, due to the impact of the Chengdu Universiade, some phosphate mines in Sichuan have recently stopped mining, and production may decrease, increasing the possibility of a rebound in phosphate rock prices. Against this backdrop, the prices of the three main raw materials for phosphate fertilizers are all on the rise, leading to strong cost support for phosphate fertilizers.

Data from Baichuan Yingfu shows that the phosphate rock market trend is stable, with the average market price of 30% grade phosphate rock being 853 yuan, currently remaining stable. However, market participants have reported that the price of phosphate rock in some domestic regions has increased slightly by 50 yuan.

Fertilizer Prices to Fluctuate at High Levels

Extreme weather and the Russia-Ukraine conflict have caused agricultural product prices to remain high. Internationally, concerns about restricted grain exports from Ukraine have led to significant fluctuations in US corn and wheat futures prices. Domestically, parts of Hebei and Heilongjiang have experienced severe floods, with crops being inundated, raising market concerns about reduced corn and wheat yields.

Regarding the trend of the fertilizer market in the second half of the year, Zhuochuang Information believes that in the second half of the year, domestic fertilizer demand will focus on autumn fertilizer preparation and winter storage, with an emphasis on high phosphate fertilizers, accounting for about three to four-tenths of the annual demand. To avoid risks during the fertilizer preparation period, dealers have shortened the fertilizer preparation cycle, and demand release will be more concentrated, locked in August to September and December. In terms of inventory, by the end of July, the industry inventories of monoammonium phosphate, diammonium phosphate, and urea were all at historically low levels. The recent rise in phosphate and nitrogen fertilizer prices has also increased the industry's demand for replenishing stocks.

Industry insiders predict that with the continuous abundance of domestic fertilizer and pesticide production capacity and the stable operation of the agricultural market, the profitability of the fertilizer industry has begun to improve recently, and the future fertilizer market will fluctuate at high levels.