The fertilizer industry stands at a critical turning point of life and death
The growth rate of agricultural fertilizer demand in the nitrogen fertilizer industry is slowing, the contradiction of overcapacity remains prominent, and the product structure and marketing services can no longer adapt to and satisfy the new changes in agricultural demand. Challenges and opportunities coexist, and nitrogen fertilizer enterprises stand at the turning point of “life” and “death”.
From January to July this year, the net loss of the nitrogen fertilizer industry reached 700 million yuan, while the compound fertilizer industry achieved a profit of 12.5 billion yuan, a year-on-year increase of 46.7%. Against such a stark contrast, the growth rate of agricultural fertilizer demand in the nitrogen fertilizer industry is slowing, the contradiction of overcapacity remains prominent, and the product structure and marketing services can no longer adapt to and satisfy the new changes in agricultural demand. Challenges and opportunities coexist, and nitrogen fertilizer enterprises stand at the turning point of “life” and “death”, and they not only need to think about change, but must do so quickly.
Recently, the 2015 National Nitrogen Fertilizer Industry Marketing Work Conference, hosted by the China Nitrogen Fertilizer Industry Association, co-organized by the Henan Province Petroleum and Chemical Industry Association, Henan Xinlianxin Fertilizer Co., Ltd., and Haohua Junhua Group Co., Ltd., and supported by Jiangsu Andefu Chemical Trading Co., Ltd., was held in Zhengzhou, Henan, with more than 300 representatives from nitrogen fertilizer production and circulation enterprises across the country attending, to deeply discuss urgent topics such as marketing innovation and product structure upgrading in the nitrogen fertilizer industry.
Operations and Predicaments: Nitrogen Fertilizer Enterprises Face the Cold Wind
Last year, the Ministry of Agriculture proposed the “goal of zero growth in fertilizer use by 2020”, and the growth rate of fertilizer demand will gradually slow in the future. According to forecasts by the Ministry of Agriculture, during the “13th Five-Year Plan” period, the growth rate of China's agricultural fertilizer demand is expected to be around 1%. As fertilizer enterprises, on the one hand they must face the current situation of nitrogen fertilizer overcapacity, and on the other hand they must face gradually slowing fertilizer demand. Under this dual pressure, enterprises face numerous difficulties.
Gao Li, deputy secretary-general of the China Nitrogen Fertilizer Industry Association, introduced that from January to July this year, the national synthetic ammonia output was 35.477 million tons, a year-on-year increase of 0.7%; the national nitrogen fertilizer output was 26.68 million tons of pure nitrogen, a year-on-year increase of 0.7%; the national urea output was 17.766 million tons of pure nitrogen, a year-on-year increase of 0.7%. Under policy control, with the upgrading of safety and environmental protection standards, the pace of new capacity construction began to slow in 2014, and the exit of capacity accelerated markedly, with 5 million tons of capacity exiting for the whole year, and it is expected that about 3 million tons of urea capacity will still be shut down in 2015.
What makes things worse for domestic nitrogen fertilizer enterprises is that preferential fertilizer policies are gradually being abolished. Gu Zongqin, chairman of the China Nitrogen Fertilizer Industry Association, said that starting in February this year, the preferential policy for fertilizer railway freight rates was cancelled; starting in April, the average electricity price for small and medium-sized fertilizer enterprises was raised by 0.10 yuan per kWh. Based on the calculation of the average price difference of 0.12 yuan/kWh between the current fertilizer electricity price and the large industrial electricity price, the cost of urea will still rise by about 115 yuan/ton. In addition, starting September 1 this year, value-added tax will be restored on fertilizers, and the cost per ton of urea will rise further. The substantial increase in nitrogen fertilizer production and operation costs will plunge a considerable number of enterprises into difficulties in production and operation.
From the perspective of export trade volume, under the multiple coordination of the China Nitrogen Fertilizer Industry Association, from January to July, 5.539 million tons of nitrogen fertilizer were exported, a year-on-year increase of 54.9%, and 7.748 million tons of urea were exported, a year-on-year increase of 46.7%; from the perspective of export prices, the average urea price reached 295 USD/ton, and the gap narrowed. Even so, Gu Zongqin still said that new foreign capacity is being put into production one after another, with 6.78 million tons of new synthetic ammonia capacity and 7.3 million tons of new urea capacity put into production abroad in 2015. “With shale gas extraction, the United States will become the country with the fastest growth in nitrogen fertilizer capacity. In recent years, the United States will greatly reduce its nitrogen fertilizer imports and also have some exports; combined with the weak recovery of the world economy, trade protectionism is rising and frictions are intensifying. For example, Indonesia has initiated an anti-dumping lawsuit against China's ammonium nitrate exports, and China's nitrogen fertilizer product exports will face greater challenges.”
With operations and predicaments before them, domestic nitrogen fertilizer enterprises are walking in the cold wind and urgently need to seize positive and favorable opportunities for transformation.
Under Reform, Opportunities Far Outweigh Challenges
In the face of the complex and severe market situation, industry development also has new opportunities and new space. To this end, Gu Zongqin summarized five points: First, fertilizer market-oriented reform and safety and environmental protection pressure promote the survival of the fittest in the nitrogen fertilizer industry, accelerate the exit of backward capacity, and help resolve the contradiction of overcapacity. For example, after the cancellation of preferential electricity prices, some old facilities with high power consumption will be eliminated; after the cancellation of preferential gas prices, the capacity of some gas-based facilities far from gas source production areas and with high gas prices will gradually exit.
Second, market demand is stable with growth. Although the growth rate of agricultural demand is slowing, industrial demand still maintains relatively fast growth. It is expected that by 2016, domestic industrial urea demand will reach 16.6 million tons, so it is recommended that nitrogen fertilizer enterprises should strictly control total capacity and vigorously develop industrial applications. On this basis, it is expected that for the whole year, new industrial synthetic ammonia demand will increase by 500,000 tons and new industrial urea demand by 600,000 tons.
Third, the accelerated advancement of the “Belt and Road” strategy is conducive to opening up international markets. According to the Ministry of Commerce, in the first 5 months of this year, Chinese enterprises made direct investments in 48 countries and regions along the “Belt and Road”, and the Ministry of Commerce is organizing fertilizer trade matchmaking work with “Belt and Road” countries, which will promote Chinese fertilizer enterprises in opening up international markets.
Fourth, the government is streamlining administration and delegating power to stimulate enterprise vitality. The Ministry of Agriculture and the General Administration of Quality Supervision, Inspection and Quarantine, in accordance with the unified deployment of the State Council, carried out reforms in the administrative approval of fertilizer registration and industrial licenses, which can reduce the administrative costs of compound fertilizers and new-type fertilizers, improve the efficiency of enterprises applying for certificates, and further reduce enterprise costs.
Finally, the state's policies supporting agriculture and the large-scale and modernized development of agriculture have brought new opportunities to the fertilizer industry. This year, the Ministry of Finance and the Ministry of Agriculture jointly issued the “Guiding Opinions on Adjusting the Three Agricultural Subsidy Policies”, deciding to adjust 20% of the funds from the comprehensive agricultural input subsidies allocated by the central finance to support moderately large-scale grain operations; at the same time, with the popularization of advanced fertilization methods such as soil testing and formula fertilization, mechanized fertilization, and irrigation fertilization, good opportunities will be brought for new-type basic fertilizers with high cost performance, large granular fertilizers, water-soluble fertilizers, and liquid fertilizers.
Wang Shengmin, deputy director of the Price Department of the National Development and Reform Commission, pointed out incisively that when the government adjusts relevant policies, it only acts as a “night watchman”; according to market changes, fertilizer enterprises need to learn to respond and adjust themselves. “Under the environment of reform, opportunities far outweigh challenges!”
The Rise of Value-Added Nitrogen Fertilizer Leads the Direction of Reform
Opportunities are certainly favorable, but if nitrogen fertilizer enterprises want to survive in the cold wind, they must strengthen their “self-cultivation”. At present, most nitrogen fertilizer enterprises produce traditional basic fertilizers, while the development of high-efficiency special fertilizers that meet the requirements of modern agricultural development lags behind, and the backward product structure has become a major shackle.
Zhao Bingqiang, secretary-general of the Chinese Society of Plant Nutrition and Fertilizer Science, believes that replacing quantity with quality is the future development path of China's fertilizer industry. “The focus of future fertilizer research should be on how to improve efficiency and utilization. Making fertilizer products green and highly efficient is the way to achieve reduced fertilizer application and increased efficiency.” To this end, Zhao Bingqiang proposed developing efficiency-enhancing value-added fertilizers, water-soluble fertilizers, and soil conditioners.
Value-added nitrogen fertilizer is a highly efficient new-type fertilizer that adds medium and trace elements, humic acid, fertilizer additives, and other substances to improve quality and efficiency and upgrade products on the basis of the original traditional nitrogen fertilizer products of nitrogen fertilizer enterprises. Gao Xiangzhao, chief expert of the National Agricultural Technology Extension Service Center of the Ministry of Agriculture, said that on the basis of changes in the fertilizer application structure, it was pleasantly discovered that new and value-added products in the nitrogen fertilizer industry are developing rapidly and have become a model for this year's agricultural “transformation of methods and adjustment of structure”. Xu Xiucheng, a professor at Zhengzhou University, also believes that China's direction of scientific and technological development is “innovation, innovation, and more innovation”, and that the most fundamental thing in implementing the innovation-driven development strategy is to “enhance independent innovation capability”.
The association proposed that by 2020, it will develop 10 million tons of value-added urea, 10 million tons of urea ammonium nitrate solution, and 15 million tons of nitro compound fertilizer.
Sticking to Old Ways Means “Death”; Marketing Innovation Means “Life”
At this conference, transforming the existing traditional marketing model of nitrogen fertilizer enterprises was a major highlight. Gao Xiangzhao proposed that China is currently in a critical period of rapid transformation from traditional agriculture to modern agriculture, and must vigorously develop new-type high-efficiency fertilizers. Among them, the key to improving fertilizer utilization lies in five aspects, including soil testing and formula fertilization, integrated water and fertilizer management, new-type fertilizer products, deep mechanical application of fertilizers, and new-type agricultural business entities.
Gu Zongqin put forward suggestions for striving to open up a new situation in the marketing work of the nitrogen fertilizer industry. He said that every possible means should be used to open up domestic and international markets, firmly grasp the main contradiction affecting the current industry's economic operation, namely insufficient effective demand, tap new demand for traditional products, tap existing markets, and seize the opportunities of emerging markets. Lu Shulin, general manager of Henan Xinlianxin Sales Company, said that in addition to developing high-efficiency new products, they are also increasing brand promotion efforts in marketing, increasing demonstration field observation efforts, and proposing solutions for different regions, crops, and soils. Jie Liujun, deputy general manager of Henan Junhua Fertilizer Co., Ltd., proposed a grand strategy of laying out across the country, “winning” the Northeast, “contending” in the Central Plains, and “seizing” the national market.
Organize production rationally and strengthen industry self-discipline. Capacity with backward processes and weak competitiveness must be resolutely eliminated. For example, Shandong Hualu-Hengsheng has achieved good economic benefits in recent years, mainly by taking the lead in shutting down old facilities and shedding the burden of operating costs.
Actively promote the “Internet + agricultural materials” action, build logistics information sharing and intelligent warehousing, improve the automation and intelligence level of logistics and warehousing, and reduce operating and sales costs. Li Baoquan, general manager of the Nitrogen Fertilizer Sales Company of Luxi Group Co., Ltd., when introducing the operating experience of Luxi Group's e-commerce platform, believed that e-commerce truly realizes and boosts Luxi's marketing transformation. At the meeting, representatives including those from Yuntianhua and Nongyisheng also introduced their respective e-commerce operation experience, giving attending representatives a good brainwashing.
The association stated that strengthening agrochemical services is an eternal topic, including accelerating the transformation of business concepts, promoting the construction of a professional agrochemical service system, and innovating agrochemical service models. In addition, safety and environmental protection work also needs to be further strengthened.
Standing at the turning point of “life” and “death”, enterprises that achieve marketing innovation ahead of time are increasing their chances of surviving in the future tide. Gu Zongqin said that even though the total profit of the nitrogen fertilizer industry lost 700 million yuan from January to July this year, the year-on-year loss was reduced by 2.8 billion yuan, “which shows that nitrogen fertilizer enterprises can no longer remain complacent. Some enterprises have already made great efforts in energy conservation and consumption reduction, product upgrading, and improving marketing levels, allowing the industry's economic benefits to improve somewhat.”