In-depth Tracking of the Fertilizer Industry: Uncertainties Impacting Overseas Markets

Key Points:

• In the first half of the year, some overseas fertilizer products have seen a release of price risks, providing a foundation for industry improvement. Since 2021, influenced by rising grain prices, there's strong support for fertilizer demand, leading to price increases. Entering 2022, major fertilizer exporting countries like Russia faced challenges due to the Russia-Ukraine conflict, limiting fertilizer exports. This, combined with the spring planting demand in the Northern Hemisphere, led to a sharp rise in fertilizer prices. However, from mid-2022, many fertilizer types began to see price declines. After nearly a year of adjustment, the main fertilizer types have seen a release of risk factors, providing a foundation for temporary industry improvement.

• The price difference between domestic and overseas fertilizers is returning to a reasonable range, with slight improvements in nitrogen and phosphorus exports. This could lead to linked changes in some products. China, a traditional agricultural powerhouse, exports nitrogen and phosphorus fertilizers to some overseas markets after meeting domestic demand. However, since the fourth quarter of 2021, to curb domestic fertilizer prices from sharply rising with overseas prices, China began inspections on fertilizer exports. In the first half of 2022, export restrictions increased significantly, causing a sharp drop in export volume. This year, the price difference between domestic and overseas fertilizers has returned to a reasonable range, and the restrictions on fertilizer exports have weakened. Although exports haven't reached 2021 levels, the increase in exports is expected to alleviate domestic supply pressure.

• Potash: Effective release of price risks, overseas prices are expected to improve. In the first half of the year, major contracts in India and China were finalized, leading to accelerated price adjustments for potash. By mid-year, overseas potash prices were relatively low. However, uncertainties like Ukraine's grain export, El Niño weather effects, and concerns about food security have arisen. With Russia considering tariffs on fertilizers and strikes in Canada, the supply side of potash faces increased uncertainties. This, combined with the peak fertilization season in Brazil and Southeast Asia, provides a foundation for price improvement.

• Phosphate Fertilizers: Diversified performance in the first half of the year, with room for improvement for monoammonium phosphate (MAP) and support for diammonium phosphate (DAP). Both domestic and overseas phosphate fertilizers were on a decline in the first half of the year. However, domestic DAP integrated enterprises have a high concentration, giving them stronger bargaining power. This provides some support for exports. But MAP enterprises have a lower industry concentration and insufficient industrial chain support. The off-season for fertilizer use weakens demand support, leading to a significant narrowing of the price difference for MAP. This has forced a significant reduction in industry operations, with supply falling and inventory being digested. Currently, domestic stocks are low, and profitability is low. The main overseas regions using MAP, like South America, are entering the peak fertilization season, providing support for MAP price increases.

• Nitrogen Fertilizers: Exports are expected to disperse the impact of domestic supply, and abnormal weather is worth noting. In recent years, due to volatile energy prices, the production cost of nitrogen fertilizers has fluctuated dramatically. This year, domestic and foreign energy prices have fallen significantly. In the future, the main focus will be on the impact of energy prices on nitrogen fertilizer costs. On the other hand, China will have new production capacity in the second half of this year, leading to an increase in domestic supply. However, in the first half of the year, China's main urea export countries had fewer tenders, which is expected to increase in the second half of the year. It is anticipated that exports will help disperse some of the pressure from the new domestic production capacity.