Fertilizer Off-Season Storage Progress Past Halfway: What Does the Industry Think?
Every year from October to March of the following year is the fertilizer off-season storage period. In terms of time, this year's fertilizer off-season storage process is already more than halfway through. So how is this year's fertilizer off-season storage going? What problems exist? What do fertilizer and related enterprises and industry experts think about this? The author recently conducted an investigation to find out.
Dealers Hold a Cautious Attitude
A dealer told the author that, overall, dealers have taken a cautious attitude toward off-season storage this year. Among them, dealers in Northeast and Southwest China are relatively enthusiastic about off-season storage, while dealers in other regions such as Central China and North China have shown a relatively lukewarm response to off-season storage.
The relatively high enthusiasm for off-season storage among dealers in Northeast China is mainly because the Northeast is an important grain production base in China. The operating rate of fertilizer plants in Northeast China is relatively high, and the operating rate of compound fertilizer plants reached about 90% at its peak. Because there are many blended fertilizer plants in Northeast China, the demand for large granular urea is large, and in the earlier period the price of large granular urea rose by more than 100 yuan per ton. In addition, the Southwest region is mainly home to gas-based fertilizer plants. Because they worry about natural gas price increases and limited supply, plants have reduced their operating load, so some dealers have stocked up fertilizer in advance, giving the off-season storage in that region a slight boost.
However, off-season storage in regions such as Central China and North China has been relatively flat. In some places, this year's off-season storage volume is less than half of the same period in previous years. Some dealers would rather leave their warehouses empty than conduct off-season storage, and some dealers only purchased a little stock and then stopped off-season storage.
When talking about why dealers are so cautious about off-season storage, Chen Li, director of the China Fertilizer Information Center, analyzed: "There are mainly the following reasons. First, in earlier years off-season storage did not make money, and prices in peak season were even lower than in off-season, which left some dealers disheartened about off-season storage. Second, fertilizer output is now very large, so even if they do not take goods in the off-season, taking goods in the peak season is still in time, and there is no need to worry about having no goods to supply during the peak season, so there is no rush to stock up in advance. Third, this year's agricultural product prices are not high, which has not only reduced farmers' purchasing power for fertilizer, but also caused the payments owed to dealers who sold fertilizer to farmers on credit to fail to be recovered in time, leaving them unable to continue off-season storage. Fourth, the pace of land transfer is accelerating, and in the future fertilizer plants may supply large agricultural households directly, leaving an increasingly small market for grassroots dealers. Some agricultural input dealers are considering whether to change careers, so they will not conduct off-season storage either. Fifth, international oil prices have fallen sharply, causing a psychological impact on some people, who believe fertilizer prices will also follow the decline."
For dealers, they can also store while selling to reduce the risk of off-season storage. Chen Jiliang, general manager of Guangzhou Longlin Agricultural Materials Company, said: "With the increase in the planting area of cash crops, the peak and off-seasons for fertilizer are no longer as obvious as before. Even in the so-called off-season, farmers actually still use fertilizer, only the amount used is not as large as in the peak season. In addition, fertilizer is not only used in agriculture; urea and others also have industrial uses, and industrial fertilizer is used all year round, so there is even less distinction between peak and off-seasons. Dealers should discover more of these needs. They do not necessarily have to store fertilizer until the spring plowing fertilizer peak season before selling it. Storing while selling during the off-season can effectively reduce the risk of off-season storage." Production Enterprises Look Forward to Business Opportunities
In the face of dealers' doubts and caution about off-season storage, fertilizer manufacturers still hope that off-season storage can become a good opportunity for product sales.
"We believe that off-season storage is still a business opportunity for both production enterprises and dealers. Through meetings and exchanges, inviting dealers to visit plants, and other forms, we analyze the current situation and future trends of the fertilizer market for dealers, encourage them, and build their confidence, so that dealers dare to store and store boldly." said a person in charge of a fertilizer production enterprise.
It is understood that many fertilizer enterprises are now actively trying every possible way to turn passivity into initiative and reverse the unfavorable situation. Among them, the main approach is joint storage and joint sales with dealers: manufacturers provide products, dealers provide warehouses, and they leverage their respective advantages to work hand in hand on off-season storage, sharing benefits and bearing risks together. Many compound fertilizer manufacturers have gone further by offering dealers guaranteed minimum prices and interest, allowing them to conduct off-season storage without risk. In order to seize the off-season storage market, some compound fertilizer manufacturers deliver and store goods in the warehouses of old customers. Customers only need to pay half of the payment, and the manufacturer implements a guaranteed minimum price, which is relatively attractive to dealers.
"Recently, dealers and retailers have been more active in stocking fertilizer than in the previous period. The reason is that enterprises provide training and market risk analysis for dealers, and during this period dealers are all paying attention to national policies, including changes in new policies such as resource tax, value-added tax, and export tariffs. Market enthusiasm has increased to a certain extent." said Tian Bin, deputy general manager of Sichuan Jinxiang Sairui Company.
Enterprises such as Shandong Kingenta have taken another approach and increased off-season storage of new-type fertilizers.
"Now competition in the ordinary fertilizer market is fierce, price transparency is high, and it is becoming harder to make money, so dealers' enthusiasm for off-season storage is not very high. But new-type fertilizers are environmentally friendly and efficient, have high fertilizer utilization rates, and conform to development trends. At the same time, because of their high technical content, there are relatively few manufacturers, and market competition is lower than for ordinary fertilizers, so dealers have a larger profit margin, which is also somewhat attractive to dealers." said the person in charge of the relevant enterprise.
Momentum for Off-Season Storage Still Exists at the End of the Period
At present, fertilizer off-season storage has entered its final period. Some industry insiders believe that the nitrogen fertilizer market is relatively likely to pick up during spring plowing, phosphate and compound fertilizers will maintain a stable and improving trend, and the risk of fertilizer off-season storage this year is not great. Dealers can use the final opportunity to carry out an appropriate amount of off-season storage.
Su Jianying, director of the Information and Market Department of the China Nitrogen Fertilizer Industry Association, used data to analyze the supply and demand relationship for urea during spring plowing: In 2014, China's newly added and retired urea production capacity were roughly equal, and total production capacity basically did not grow, remaining at about 80.70 million tons; urea output fell by about 1 million tons compared with the previous year, but export volume increased substantially, causing China's domestic urea resource volume in 2014 to decrease by 6.23 million tons year on year. If calculated at 1 million tons of urea exported per month, the urea resource volume from January to April 2015 is expected to decrease by 4 million tons compared with the previous year. She suggested: "To prevent a situation of tight domestic supply, production enterprises should give priority to sending goods to the domestic market for sale and effectively ensure fertilizer supply for spring plowing."
Dai Limin, manager of Hunan Xiangfeng Fertilizer Company, said that there are currently three favorable factors for off-season storage: First, prices are at a low level in recent years; second, grassroots inventories are insufficient, while farmers' demand for fertilizer is basically rigid, so there is a gap in the market; third, the global fertilizer market is expected to warm up moderately this year. Some analysts also believe that nitrogen fertilizer prices will begin a restorative rise during the spring planting season, with an expected increase of 40 to 50 US dollars per ton; it is expected that world phosphate fertilizer prices will not rise much this spring, with an increase of 35 to 50 US dollars per ton; at present, potassium fertilizer prices have already begun to bottom out and rebound, and are expected to maintain a trend of rising from a low level.
As for the question of whether the sharp decline in international oil prices will drive fertilizer prices down, a dealer in Jiangsu expressed his own view. He said that when he first entered the agricultural input industry to sell fertilizer, the price of urea was more than 1,900 yuan per ton, while the international oil price at that time was more than 20 US dollars per barrel. Although international oil prices plummeted after the second half of last year and are now more than 40 US dollars per barrel, the current price of urea is only more than 1,500 yuan per ton. It can be seen that oil prices and fertilizer prices are not absolutely related. The vast majority of urea internationally uses natural gas as a raw material, while most urea produced in China uses coal as a raw material. Coal and natural gas are the key factors affecting urea prices, but there is no reason to expect either of them to continue falling sharply. This dealer said that he has already carried out some off-season storage and is not too pessimistic about the future fertilizer market.