Fertilizer prices are rising, will pesticide prices follow suit?
Event 1:
According to some media reports, recently relevant personnel from the pesticide association stated that the deadline for issuing pollution discharge permits in the pesticide industry is within the next two months, after which enforcement inspections will be carried out.
In the future, companies that have not obtained permits will be required to suspend production, and the pesticide industry landscape has entered a countdown before a major round of changes.
Event 2:
During this year's fertilizer winter storage process, "rising" became the most frequently appearing word.
Currently, winter storage in most regions is proceeding in an orderly manner, while successive increases in raw material prices have pushed finished fertilizer prices up gradually. According to China Fertilizer Network, the mainstream ex-factory quotes for 45% sulfur-based general-purpose series fertilizer products nationwide have reached 2300-2450 yuan/ton, up about 300 yuan from the same period last year.
Investment logic:
1. According to the implementation plan for the pollutant discharge permit system issued by the General Office of the State Council in November 2016, full coverage of fixed pollution sources will be achieved step by step by industry. The first pollution discharge permits will be issued to enterprises in the thermal power and papermaking industries. Within 2017, pollution discharge permit issuance will be completed for 15 key industries and industries with excess capacity, and by 2020 this work will be basically completed nationwide.
As one of the above 15 key industries, the pesticide industry, according to current disclosures by the Ministry of Environmental Protection, had 403 pesticide enterprises that had obtained pollution discharge permits as of December 28, 2017, while the number of pesticide enterprises nationwide exceeds 2200. The proportion of pesticide enterprises that have obtained pollution discharge permits is less than 20%, and the supply side of the pesticide industry is intensifying.
At the same time, according to the 13th Five-Year Development Plan for the pesticide industry, during the 13th Five-Year Plan period, pesticide technical material production will be further concentrated. By 2020, the number of pesticide technical material enterprises will decrease by 30%, including 5 pesticide production enterprises with sales of more than 5 billion yuan and 30 pesticide production enterprises with sales of more than 2 billion yuan. Coupled with the vigorous relocation of enterprises from cities into industrial parks in various regions, the pesticide industry will in the future show a development pattern of increased concentration and the strong becoming stronger.
2. The prosperity of pesticides and fertilizers has historically moved in the same direction. Recently, fertilizer prices have remained strong, and it is believed that price increases will transmit to the pesticide sector.
Therefore, we believe that the supply side of pesticides will continue to be restricted by strict environmental regulation, while demand is relatively rigid and gradually recovering, which will support strong pesticide prices. At the same time, pesticide prices have already risen moderately in the fourth quarter, and it is expected that the profitability of related enterprises since the fourth quarter of last year will continue to be solid and is expected to improve further. It is expected that the entire industry will have opportunities for valuation improvement.
Key focus:
Sanonda A, Hailir, Red Sun, Yangnong Chemical