December 3, 2008

China's calcium phosphate prices to stabilize on relaxation of fertilizer tariffs


Calcium phosphate prices in China, which have plummeted by 70 percent from RMB5,000 per tonne around May to RMB1,400-RMB1,500 per tonne recently, are poised to go up with the introduction of new tariff rates on phosphate fertilizers.


Since China has imposed the special export tariff of 100 percent on phosphate fertilizer in May this year, the exports of the product was totally contained. In early November, domestic phosphate fertilizer stocks had reached 3.3 million tonnes and the production rate of phosphate fertilizer was less than 50 percent.


This painted a grim scenario for the industry as prices of raw materials, particularly those of sulfur, dropped rapidly. The price had fallen to a staggering US$50 per tonne from a record of US$800 per tonne.


Further, a declining trend was seen in the domestic prices of feed grade calcium phosphates. The price had dropped to RMB1400-1500 per tonne from RMB5000 per tonne after the earthquake.


To remedy the situation, the State Council Tariff Policy Commission of China recently released tariff adjustments for 3770 products, accounting for about 27.9 percent of the country's exported products.


For the phosphorus chemical industry, this tariff adjustment was seen to greatly stimulate the enthusiasm of phosphate fertilizer reserve and that the policy will guide the development of the market.


Just last week, feed enterprises began to stock up for inventories which made the prices of dicalcium phosphate (DCP) begin to stabilize. Thus, China's policy on fertilizer not only determined the domestic fertilizer market, but also greatly affected the DCP market.


With the implementation of the new fertilizer export policy, the phosphate fertilizer companies are expected to seize the opportunity of the reserve in December 2008, stepping up exports to reduce high domestic inventories.


This is seen to also improve the production rate and to increase the demand for raw materials, enabling the price of sulfur to finally rebound - and propel DCP prices to rise. Further, domestic feed companies and distributors have increased their purchasing volume, signalling for market procurements to be gradually active.


At this moment, as the costs of DCP indicate an upward trend, the manufacturers of DCP are expected to raise their product prices. This will further stimulate the purchase of downstream buyers, encouraging the rebound of DCP prices.


All in all, the relaxation of the national fertilizer exports policy will play a positive role in the DCP market. It is expected that the price of DCP will steadily increase in the coming period of time.


The tariff adjustment is the third export supportive policy after some policies were issued in Augest 1 and November 1.


China's recent issuance of RMB4 trillion as an economic stimulus highlights the grim economic situation; yet it indicates that the country still clings to its "Growth Guarantee" plan. The government's investment is considered to play a very vital role in propelling its agriculture industry, thus reviving the confidence of the market.

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