Compound fertilizer price increases may turn out to be false joy, with market chaos rampant

At the end of November 2016, tentative winter storage quotations for compound fertilizer were successively released. Affected by the obvious upward trend in raw material prices, compound fertilizer enterprises' quotations also rose accordingly. Currently, the winter storage ex-factory quotations of a few enterprises for 45% chlorine-based general-purpose compound fertilizer are 1630-1750 yuan/ton; high-end quotations are around 1800-1900 yuan/ton. The winter storage ex-factory quotations of a few enterprises for 45% sulfur-based general-purpose compound fertilizer are 1850-1950 yuan/ton, with the high end at around 2100 yuan/ton and the low end at 1750-1780 yuan/ton. Quotations are extremely chaotic, and a mainstream price is still difficult to form. The market demand situation for compound fertilizer is also quite chaotic, mainly manifested in the following aspects:

1. Quotations are rising, but actual transactions are limited, and enterprises are mainly focusing on previous orders for now.After urea began raising quotations following August, phosphate fertilizer and potassium fertilizer also successively issued voices of price increases.

After observing the fertilizer market for as long as 3 months, compound fertilizer finally took the step of raising prices: starting in mid-November, compound fertilizer enterprises began tentatively issuing tentative winter storage quotations. Compared with the tail-end prices of autumn fertilizer, the initial winter storage quotations mostly remained stable or rose slightly by around 30-50 yuan/ton, and as the scope of raw material price increases expanded, winter storage quotations for compound fertilizer began to gradually increase over the past week, with the quotation increase also reaching 80-120 yuan/ton. Although the upward trend is encouraging, demand is not optimistic. As of now, most compound fertilizer enterprises' winter storage payment collection volume has reached only 30%-40%, mainly from old customers, and mostly executed at previous low-end quotations. Therefore, in the short term, the rise in compound fertilizer quotations has still not been fully accepted by downstream buyers, and for the time being it still looks like a false joy.

2. Insufficient operating rates, with enterprises performing differently.As of the end of November, according to a survey by China Fertilizer Network of over a hundred large compound fertilizer enterprises, the overall operating rate of compound fertilizer enterprises is not high, at around 50%. In particular, the Hebei region is affected by environmental protection inspections, and most local enterprises are still in a state of shutdown for maintenance. In addition, affected by frequent recent fluctuations in raw material prices, a few enterprises' earlier low-price raw material reserves are not sufficient, and they have recently suspended taking orders to observe the market. Some other enterprises, constrained by costs, tentatively raised quotations slightly, but downstream acceptance was poor, and new order transactions were slow, so that recent quotations were forced down. However, most compound fertilizer enterprises still maintain a rational attitude and observe market conditions, either making payments with interest and temporarily not quoting, or tentatively quoting and adjusting at any time according to changes in demand and raw material prices. Therefore, in the face of the recently foggy fertilizer market, compound fertilizer enterprises should act according to circumstances and remain calm.

3. Demand is weak, enterprises are blindly optimistic, and government policies have a major impact,market manipulation is emerging. The main factors affecting compound fertilizer prices are, first, raw material costs, and second, market demand. Recently, although raw material prices have remained firm and compound fertilizer manufacturers' psychology of supporting prices is relatively strong, the 50% operating rate seems to warn people not to be blindly optimistic. After all, grain prices are so low, and the downstream wait-and-see mentality still persists. At the same time, the recent rise in raw materials is closely related to the introduction of government policies, and market manipulation is faintly visible. Therefore, amid the chaotic fertilizer market, compound fertilizer should remain rational and absolutely not be blindly optimistic.

Finally, to conclude, I borrow a line from Tang Yin's poem "Song of the Peach Blossom Cottage": “Others laugh at me for being too crazy, I laugh at others for not seeing through. No tombs of heroes of the Five Mausoleums remain; with no flowers and no wine, they are hoeing as fields.”

(Source: China Fertilizer Network Author: Yang Xiaomei)