China Struggles To Boost Fertilizers | March 10, 2008 Issue - Vol. 86 Issue 10 | Chemical & Engineering News
Volume 86 Issue 10 | p. 38
Issue Date: March 10, 2008

China Struggles To Boost Fertilizers

Country introduces controls to cap rising prices for fertilizers
Department: Business
National Priority
China has introduced price controls on fertilizers to protect farmers and rein in surging food prices.
Credit: Xinhua News/OTHK
National Priority
China has introduced price controls on fertilizers to protect farmers and rein in surging food prices.
Credit: Xinhua News/OTHK

SEEKING TO HEAD OFF potential unrest among farmers, China's powerful State Economic Development & Reform Commission has announced that it will start controlling the price of fertilizers. Producers will have to ask the agency for permission to raise prices.

The move will not sit well with Chinese fertilizer makers, who raised prices last year to cope with rising production costs. According to Isaac Zhao, a Beijing-based analyst at the fertilizer consulting firm British Sulphur, the price of sulfur, a key raw material in making phosphate fertilizers, more than sextupled last year.

Fertilizer firms will have to adjust, Zhao says. He explains that the main Chinese producers of fertilizers are state owned, and managers could lose their jobs if they fail to comply. The companies will try not to reduce output, he expects, nor will they get much in the form of subsidies.

And not many of China's price-controlled fertilizers will find their way onto higher priced international markets. A 35% export tax on fertilizers introduced in mid-February has all but killed exports of Chinese fertilizers, Zhao says.

Chinese fertilizer companies had been increasing their exports in recent years to cover their costs and maintain profits. Last year, Chinese fertilizer exports more than doubled, compared with 2006, to about $3 billion, according to China's customs statistics. On the international market today, the common fertilizer diammonium phosphate sells for about $850 to $900 per metric ton. In the Chinese domestic market, the same fertilizer sells for about $600, and its price rises to more than $800 when the 35% export tax is tacked on.

From the standpoint of ending the diversion of Chinese fertilizers away from Chinese farmers, the export tax has been a great success, Zhao says. He adds that the new tax complements the 2004 abolition of a tax rebate that fertilizer manufacturers earned by exporting their products.

Zhao notes that the late-January snowstorms China suffered could have a substantial, but hard to quantify, impact on its fertilizer market. On one hand, he says, fertilizer demand will decrease because of the extensive damage the storms wrought on Chinese farmland. On the other hand, the storms forced fertilizer producers to curtail their operations. Zhao estimates that sulfur-rich Guizhou, China's main fertilizer-producing province, will, by the end of 2008, have reduced its output of fertilizers by as much as 500,000 metric tons, or about one-sixth of what it can produce.

China considers fertilizer production a national priority. Without an adequate supply of reasonably priced crop nutrients, the country's largely agrarian population will find it hard to earn a living and could become restless. Furthermore, bad crops or high prices for agricultural inputs could lead to rising food prices, which in turn could result in general discontent throughout the country.

IT'S FAR FROM UNUSUAL for governments in Asia to intervene in the fertilizer market. India subsidizes both its domestic fertilizer producers and importation of fertilizers. In Indonesia, the country's largest urea producer, state-owned Pupuk Kaltim, is not allowed to export.

China's latest policies may stabilize the market in the short term but are unlikely to encourage construction of new fertilizer plants. Indeed, Zhang Yuzhuo, vice president of Shenhua Group, China's largest producer of coal and coal-derived chemicals, tells C&EN that his firm is not impressed by the fertilizer market. Zhang points out that Shenhua, which is listed on the Hong Kong stock market, is obligated to generate attractive results for its shareholders. "We don't think that fertilizers are a very profitable business," he says.

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