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Although the domestic fertilizer market saw an overall upward trend in the first quarter of this year, prices remained stable in the second quarter, with little change in the ex-factory prices of production companies. However, experts predict that the market will face oversupply in the second half of the year, making a price drop almost inevitable. In response, industry players are advised to take proactive measures to mitigate risks. These insights were shared at the National Chemical Fertilizer Price Information Seminar organized by the Yunnan Provincial Chemical Industry Association.
In the first half of the year, rising costs of electricity, steel equipment, and transportation pushed up production expenses for fertilizer companies. As a result, they adjusted prices according to market demand while adhering to national policy limits, which contributed to the upward trend in market prices. Additionally, farmers, still affected by last year’s high prices, had limited cash flow, leading them to purchase and store fertilizers early, further supporting higher prices. Consequently, the national fertilizer market experienced a balance between supply and demand, with rising prices and strong sales performance.
According to statistics, total fertilizer production (refinement) reached 26.5 million tons in the first half of the year, representing a 15.5% year-on-year increase. This marks a 3.8% rise compared to the same period last year. Nitrogen fertilizer output was 18.892 million tons, up 12.6%, while urea production reached 10.71 million tons, a 11.8% increase.
In terms of pricing, the domestic fertilizer market showed a general upward trend in the first quarter. For example, the ex-factory price of urea was around 1,600 yuan per ton in January, rising to approximately 1,800 yuan by mid-March. In the second quarter, as more fertilizer products entered their target markets, market saturation helped stabilize prices to some extent. While prices in northern China continued to rise, those in the south remained flat or slightly increased. By mid-June, prices in southern regions dropped slightly due to the end of the peak fertilizer season, whereas prices in the north fell sharply.
Looking ahead, the Chinese fertilizer market is expected to face a situation of oversupply in the second half of the year. Experts believe that a price decline is unavoidable, though the rate remains uncertain. Several factors contribute to this trend: first, the new capacity added in 2005 will increase urea production by about 1 million tons; second, the agricultural fertilizer usage will decrease after the busy season; third, the government's promotion of soil testing and formula fertilization, covering 280 million mu of land, is expected to reduce nitrogen fertilizer use by over 7.8 million tons.
Experts also note that China's fertilizer industry is still in a phase of rapid development. Several major projects under construction will come online, potentially leading to oversupply. According to estimates, new urea production capacity is expected to reach 5.76 million tons in 2006, with an additional 80 million tons planned by 2008. The Ministry of Agriculture aims to apply soil testing and formula fertilization across 900 million mu of farmland, reducing annual nitrogen fertilizer use by over 11 million tons.
To address these challenges, experts recommend several strategies. First, companies should focus on optimizing product structures, prioritizing basic fertilizers like DAP and MAP, and NPK compound fertilizers, while improving existing facilities. Phosphate fertilizer enterprises should carefully plan expansion and transformation, strictly controlling scale and production volume. They should avoid developing outdated products such as TSP and NP, and instead eliminate inefficient, polluting equipment through market forces and regulatory actions.
Second, resource allocation should be optimized, and policies like "mineral-fertilizer integration" and "salt-fertilizer combination" should continue to prevent over-investment and redundant construction. Third, enterprise restructuring is essential, with a focus on building large-scale groups to enhance industrial concentration and global competitiveness. Companies should reorganize their capital, product, and organizational structures to achieve complementary advantages and resource sharing.
Fourth, technological innovation must be accelerated, with efforts to develop new fertilizer varieties and improve R&D capabilities. Companies should continue to introduce and adapt foreign technologies and equipment to fully utilize existing production capacities. Finally, the industry should embrace sustainable development, adopting clean production methods and creating environmentally friendly operations to ensure long-term economic, social, and environmental harmony.