Integer View from China 12 May 2017 - Improved urea producers’ profit; China fertilizer VAT cut; Crop area substitution to urea consumption - Integer
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Integer View from China 12 May 2017 – Improved urea producers’ profit; China fertilizer VAT cut; Crop area substitution to urea consumption

Posted On: 12-05-2017 By: Grahame Turnbull

Message from Oliver Hatfield – Director of Fertilizers and Chemicals

It will be of little surprise to know that the country our analyst team get the most questions about is China. It’s the biggest country consumer and producer of most products – and even small % changes in volumes can significantly move the global market.

Also unsurprisingly, China is the most unpredictable and complicated market to understand. Our team benefit greatly from having the local presence – and extensive fertilizer market expertise and experience – of our colleague Lynn Wang, based at our office in Beijing. To showcase this expertise, Lynn will be producing a more focused ‘View from China’, which we’ll share with you every month or so.

 

China value added fertilizer boost producer profits

By Lynn Wang – Research Manager based in China
Lynn.Wang@integer-research.com

The market for valued added fertilizer products is traditionally located in locations like North America, Europe and Japan,  but the business is developing quickly in China. In China, there is a growing market for adding humic acid, amino acid or alginate to normal grade fertilizer, in order to improve fertilizer efficiency.  According to data from the China Nitrogen Fertilizer Association, China produced 900,000 tonnes of value added urea, 100,000 tonnes of value added DAP and 600,000 tonnes of valued added NPK in 2016.

Faced with challenging market conditions and weak or negative margins in commodity products, Chinese producers are adopting these new technologies to produce more specialist and differentiated fertilizer products. In 2016, about 22 urea manufacturers produced value added urea, including Yuntinahua, Yihua, Tianze, Lanhua, Jinmei Zhongneng, Qinghai Salt Lake, Meifeng, and Xinlianxin. For example, Yuntianhua produced 30,000 tonnes of zinc humic acid urea in 2016, and plans to expand production to 100,0000 tonnes in 2017.

Lanhua produced 40,000 tonnes of value added urea in 2016. According to the company, the gross profit per tonne of value added urea was about US$10-11/t, greatly improved compared to a gross loss of about US$20/t in 2016

With China seeking to improve the efficiency of fertilizer use, the value added industry is being fast tracked and growth is expected to accelerate, with government support. The Ministry of Industry and Information Technology (MIIT) said in its 13th Five Year Plan that China will produce 10 million tonnes of value added urea, 5 million tonnes of value added DAP and 10 million tonnes of valued added NPK in 2020.

Read more on Integer’s Value Added Fertilizer Summit Asia 2018

China fertilizer VAT cut to modestly improve producer margins

By Lynn Wang – Research Manager based in China
Lynn.Wang@integer-research.com

 

The government of China has announced new tax reforms following a State Council meeting on April 19th 2017. The reforms will streamline the value-added tax (VAT) structure and reduce VAT on agricultural products and natural gas from 13% to 11%.

According to the National Bureau of Statistics (NBS), the total revenue of the fertilizer industry was CNY 805 billion yuan (US$117 billion) in 2016. The VAT cut would therefore save about US$2 billion tax for fertilizer producers. It’s possible that the reform will have some impact on fertilizer prices, but any price impact is likely to be modest given that the  2% tax decline is relatively small.

 

Chinese crop area substitution to urea consumption by 1.3 m tpy by 2018

By Lynn Wang – Research Manager based in China
Lynn.Wang@integer-research.com

The Ministry of Agriculture announced that China will reduce corn planted area by 3.3 million hectares during the period 2016-2018 due to crop substitution, with about 2 million hectares of corn switched to other crops in 2016. For the current crop, the National Bureau of Statistics published data in April 2017 revealed that Chinese corn growing area will drop by 4% year-on-year in 2017, while soybean area is up by 8.1% .

Given that corn needs around 225 kg N per hectare in China and that around that 80% of nitrogen is provided by urea, the crop substitution implies that Chinese urea consumption may be decline by 1.3 million tpy by 2018 due to this factor alone.

Read more on Integer’s Nitrogen Cost and Profit Margin Service, Nitrogen 10-Year Outlook Service and The Chinese Urea Industry.

Additional article: Integer also released a related article titled Global Sulphur demand: How will China’s 27% share of consumption develop? To see this article click here >>

New Report – Chinese Sulphur: For more information on Integer’s Chinese Sulphur spotlight report, and how the analysis and supporting data it provides can support your decision making, please click here.

We hope you found this special monthly digest of interest, please do not hesitate to contact our analysts with any thoughts or queries. 

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