The Prospect of China's Chemical Fertilizer Industry-- intensified differentiation of Enterprises in the Industry

As an important means of agricultural production, the demand of the chemical fertilizer industry has been relatively stable, but due to the wanton expansion of early production capacity and government export controls, the problem of overcapacity in the industry has become increasingly prominent, especially in 2014. From January to September 2014, the output and prices of China's chemical fertilizer industry fell by 2.1% and 8.8% respectively compared with the same period last year. The decline in volume and price led to a downturn in the overall prosperity of China's chemical fertilizer industry and a general deterioration in the operating conditions of enterprises. In the first three quarters, the growth rate of industry income fell by 2.23 percentage points to 5.53%, and the total profit decreased by 24.73% compared with the same period last year, especially in urea and phosphate fertilizer industries. Total profits fell 263.88% and 17.59% respectively from the same period last year.

In order to alleviate the above situation, dredging and limiting industry excess capacity has become the consensus of the government and enterprises. In terms of policy, the uniform annual tax rate or tax amount during the 2015 tariff abolition window has been basically determined, and the resumption of value-added tax to promote the survival of the fittest through cost addition has also been put on the agenda and is expected to be implemented in the short term. Looking forward to 2015, driven by the relaxation of export policies, the production and sales of urea and phosphate fertilizer industry are expected to increase, but the downward or low operation of the prices of coal, phosphate rock, synthetic ammonia and sulfur, the main raw materials, is still difficult to provide a strong cost support to the prices of chemical fertilizer products. Urea and phosphate fertilizer prices have room to rise driven by the growth of production and marketing, but the increase is expected to be limited, and the profit situation of nitrogen and phosphate fertilizer enterprises will improve. The domestic price trend of the potash industry will still follow the changes of international fertilizer prices, while the flooding accident of Ural potash mine may affect the world potash supply and production costs, and stimulate the rise of potash prices. It is expected that the negotiation price of potash fertilizer contract in China will increase in 2015, which will lead to a rise in domestic potash prices, and the profitability of potash companies will be significantly improved. Due to the large number of small enterprises in the compound fertilizer industry, it is difficult for the industry concentration to increase rapidly in a short period of time. At the same time, with the increase in the price of the above-mentioned elemental fertilizer in 2015, the pressure on the production cost of compound fertilizer increases, and the price increase is expected to keep pace with the cost. The operating situation of the whole industry will remain stable or slightly improved.

In terms of industry differentiation, there will still be differences in credit quality among chemical fertilizer subsectors in the future, and the credit quality of potash fertilizer and compound fertilizer industry will still be better than that of nitrogen fertilizer and phosphate fertilizer industry. At the same time, the differentiation among enterprises within the subdivision industry will be more obvious. Large compound fertilizer enterprises will enjoy strong competitive advantages in scale, marketing channels and technological research and development, which will be more superior to small and medium-sized compound fertilizer enterprises. In urea enterprises, because the production enterprises with bituminous coal as raw materials have more cost advantages, their credit quality will be higher than that of urea enterprises with natural gas or anthracite as raw materials.

To sum up, China debt Credit believes that the overall operating situation of the chemical fertilizer industry will improve slightly in the coming period of time, maintaining the "poor" industry evaluation of the chemical fertilizer industry's credit quality and a "stable" industry outlook.