Deloitte says Chinese fertilizer players need to watch international trade flow

Published: 28 June 2013

Despite opportunities generated from compound fertilizer and sustainable solutions, the Chinese fertilizer industry is going to face major challenges in the coming year. It becomes important for fertilizer players to monitor changes in international trade flow and build stronger market access, according to the latest issue of Deloitte Chemical Quarterly.

Focusing on China's fertilizer industry, this second quarter issue explained that favourable government policies as stipulated by the Fertilizer 12th Five-Year Plan will increase the penetration of compound fertilizer to account for a targeted 40 percent share by 2015.

"In comparison to phosphate and potash fertilizer, nitrogen fertilizer has become excessively used because of substantive price difference, aggravating environment damage such as water contamination and soil acidification," said Yann Cohen, Deloitte China Chemical Managing Partner.

"Combined with other secondary and micronutrients, a compound fertilizer can help increase fertilizer performance and reduce labour costs. Therefore, compounding is now development rapidly in China with nearly 30 percent of the total volume to date," he added.

Since fertilizer is a global commodity, the report said producers can be increasingly impacted by supply and demand changes in the overall international trade flow. As an important nitrogen and phosphate fertilizer exporter, China also relies heavily on imports of potash fertilizer especially from Russia and Canada. The Chinese fertilizer import/export balance is part of the global fertilizer supply and demand landscape.

"Given this import/export dynamics, it becomes important for domestic fertilizer producers in China to anticipate changes in international trade flow that may affect not only their export but also their domestic market. For instance, Chinese nitrogen fertilizer players should especially pay attention to export risks in regions where significant near-term capacity expansion are expected such as in North America driven by the boom of shale gas," Mr Cohen added.

When it comes to supply structure, the report said China fertilizer industry is highly fragmented although the level of fragmentation varies substantively across single nutrient, with nitrogen fertilizer extremely fragmented and potash fertilizer highly consolidated, while phosphate fertilizer is in between. The Fertilizer 12th Five-Year Plan is promoting the consolidation of the nitrogen fertilizer and the internationalization of the potash fertilizer sector, while limiting the expansion of the phosphate fertilizer sector.

As a conclusion remark, the report stressed the importance of market access for any agro-chemical in China whether fertilizer or pesticide. "Chinese players need to get prepared for any crunch time to come in the next 12 to 24 months in given nutrient(s). Superior route-to-market is a key success factor to protect and gain market share, with various traditional options as well as alternative ones. At the end of the day, commercial platforms are a trade-off between management control, sales effectiveness and cost-to-serve," Mr Yann noted.