Integer View from China 19 June 2017 – DAP producers discuss supply management; China potash contract analysis; Presentations now availablePosted On: 20-06-2017 By: Grahame Turnbull
Chinese DAP producers discuss supply management, but words butter no parsnips
By Lynn Wang – Research Manager based in China
Since December 2016, Chinese large DAP producers, such as Yuntianhua, Wengfu and Kailin, have gathered frequently to discuss the market, almost once a month. The meetings have led to some significant outcomes, for example they reached an agreement in January to reduce DAP production by 5 million tonnes in 2017. The announcements have coincided with Chinese and international DAP prices rebounding significantly since the end of 2016. During Q1 of 2017, Chinese DAP prices increased by US$50/t to US$355/t, tracking international prices reasonably closely.
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However, higher DAP prices cannot solely be attributed to phosphate fertilizer producers’ supply management (and perhaps not at all). According to the data of National Bureau of Statistics, in the first four months of 2017, Chinese phosphate fertilizer production reached 6 million tonne P2O5, an increase of 3.2% over the same time of 2016. Chinese phosphate fertilizer production didn’t decline as these producers expected. Higher output likely explains Chinese phosphate fertilizer exports. In the first four months of 2017, China exported about 1 million tonnes of DAP, up 17% compared to the same period in 2016. Chinese MAP export was about 0.7 million tonnes during January – April 2017, up 54% year-on-year. Since phosphate spring demand in China appears to be normal, it would appear that the increase in exports was associated with increased Chinese production, which in turn was a response to higher DAP and MAP prices.
There’s no denying that Chinese large phosphate fertilizer producers have capability to manage supply and impact domestic market. The combined DAP capacity of these large phosphate fertilizer producers is about 16 million tpy, representing about 75% of Chinese total DAP capacity. In addition, these large producers have lower production cost due to large scale, cheaper phosphate rock supply and improved access to ammonia and sulphur for some operations. It appears that agreements to curtail production are of little significance when signals from the market incentivize the opposite.
Read more on Integer’s The Chinese Phosphate Industry, addressing the global impact, Phosphate Cost and Profit Margin Service, Phosphate Rock Outlook Report and Check out our Phosphate Webinar Page
Why no China potash contract yet?
By Lynn Wang – Research Manager based in China
It used to be true that everyone watched the timing and price of Chinese potash purchases at the beginning of each year to gauge subsequent market sentiment. This is decreasingly the case. Agreements are getting later, and the relative importance of Chinese volumes has diminished. Chinese potash imports have fluctuated within a large range in the past several years. In 2016, China imported 6.8 million tonnes of MOP. This compares to 8.0 million tonnes in 2014 and 9.4 million tonnes in 2015, and this higher import volume apparently led to higher carry-over stock. According to Integer’s estimation, there were still about 5.0 million tonnes of potash inventories by the end of May 2017 in Chinese market, considering volumes at sea ports, held at producers in Qinghai and Xinjiang, and with NPK producers.
With such significant swings in volume, understanding the underlying level of demand is problematic. This in turn creates uncertainty about import needs which once again has contributed to delays to the 2017 China potash contract price, under discussion since March 2017. The contract price was US$219/t in 2016, whereas deals done recently elsewhere are substantially higher than this.
Beside stocks, rising Chinese production volumes also influence import needs. According to the China Potash Association, China produced 7.5 million tonnes of MOP and 2.4 million tonnes of primary SOP in 2016. The combined total of 9.9 million tonnes was up 4% year-on-year. Chinese producers have increased production rapidly, but there are still constraints on availability. For example, Chinese potash producers in Qinghai and Xinjiang struggle to ship all available product to market due to insufficient railway capacity.
Chinese potash production is expected to continue to increase, with large potash producers continuing to expand capacity in the next 2-3 years, such that import requirements may decline looking forward, if it exceeds new demand. For example, Qinghai Salt-lake Group plans to expand MOP capacity from 5 million tpy to 6 million tpy, Zangge will expand from 1.8 million tpy to 2 million tpy and Xinjiang Luobupo Potash will expand from 1.5 million tpy to 1.8 million tpy. China has also sought to invest in 30 potash deposits overseas and has interests in projects in various locations including Canada, Laos, Thailand and Congo. Kazakhstan. However, most of these projects are early stages of development and unlikely to influence the China market balance in the near future. Up to now, the most advanced projects in this category are in Laos, such as Yuntiahua Zhongliao, Kaiyuan Potash and SinoAgri. In 2016, Laos potash production was about 460,000 tonnes of which exports to China were about 150,000 tonnes.
So it seems that the anticipation and excitement around the Chinese contract that captured the attention of the potash market may be a thing of the past.
Free Download: Integer’s Fertilizer Seminar Presentations now available
Integer Research recently held seminars whilst in attendance at the IFA Annual conference in Marrakech on the 23rd May 2017. These seminar presentations addressed key issues such as drivers of costs, profitability, the outlook for supply, demand, trade, pricing, and more across all nutrients.
We have now made available the presentations from our seminars free to download. the fertilizer nutrients covered include:
- Value Added Fertilizers
- Sulphur & Sulphuric Acid
- Bonus whitepaper
Click here here to download the presentations (you will need to fill in a very short form)
Integer has made available free concise and insightful fertilizer and chemical market outlook analysis webinars. >> Click Here to see a full list of the coverage across Nitrogen, Phosphate, Potash, Sulphur, and Sulphuric Acid
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