Ifluences of Railway Freight Rates Adjustment on Fertilizer Market in 2014

By CnAgri2014-02-26 09:28:25 Print

On Feb. 14th 2014, China Railway Cooperation announced to raise freight fee 1.5cent/ton/Km since Feb. 15th 2014. And government will guid railway freight rates instead of pricing. The growth rate was the same as the year before.
　　
Agricultural fertilizer transportation fee is calculated according to No. 2 freight rate. Based on the price adjustment, base price 1 rises 1.2 yuan from 7.9 yuan to 9.1 yuan, a growth of 15.19%; and base price 2 rises RMB0.0149/ton/Km from RMB0.0651/ton/Km to RMB0.080/ton/Km, a growth of 22.89%.
　　
Railway freight rate formula:freight rate for per ton goods=base price 1+base price 2×distance(Km). Take 1000Km as an example, the freight rate rises: RMB1.2+RMB0.0149/ton/Km×1000Km=RMB16.1, a growth of 22.05%.
　　
Railway freight rates have been raised for 9 times since 2006. The growth rate is the highest this time, rising RMB16.1/1000Km, it was RMB15/1000Km in 2013 and it was below RMB10 for the rest 4 times. On April 1st 2011, it rose RMB1.4/1000Km, lowest growth rate.
　　
The large growth rate has huge influences on fertilizer market especially in the following conditions:
　　
1. Far distance transporting. Since freight rates have direct relationship with distance, the adjustments always have the greatest influences on remote areas, such as Xinjiang, Heilongjiang, Fujian, Guangdong, Guangxi and Yunnan. With a distance of over 4000Km, the urea freight rates will rise more than RMB60/MT from Xinjiang to EC and SC after the adjustment and vice versa. Besides, the freight rates rise more than RMB40/MT as well transporting DAP from Yunnan, Guizhou and Sichuan to NE areas.

2. Low-price fertilizer. Fertilizer price varies a lot for different varieties. For some fertilizer, such as DAP and potassium sulfate, the price exceeds RMB3000/MT and for some other fertilizer, such as SSP, ABC and ammonia sulfate, the price is only several hundred yuan. For high-price fertilizer, freight rates accounted little in the price, so the adjustment has less  impacts. But for low-price fertilizer, it is contrary and the influence is great.
　　
3. Potash. Since most potash is mostly produced in Qinghai and Xinjiang, the far distance increases a lot of fee. But potash price is hard to increase accordingly, for imported potash price is less influenced by the rates adjustment with ocean freight and sees no increase. So it will be domestic potash manufacturers to bear the rates increase, which will lower down the profit.
　　
4. Compound fertilizer. As compound fertilizer is secondary-processed products, most manufacturers need purchase nitrogen, phosphate and potash from other places. So the freight rates adjustment has double influences on compound fertilizer in both raw material procurement and products sales. Therefore, compound fertilizer is more sensitive to the adjustment.
　　
5. Far-distance raw material transporting. A considerable urea manufacturers use Shanxi coals as raw materials, so the producing costs will increase due to the far distance to the south. Coal transporting fee is calculated according to No.4 freight rate. After the adjustment, it will rise RMB15.4/MT/1000/Km. Except that, many ammonium phosphate manufacturers in central and eastern areas also procure phosphate rock from Yunnan, Guizhou, Sichuan and Hubei, there is the far-distance  problem as well.
　　
6. Highlighting the advantages of importing fertilizer in disguise. In coastal areas, such as Guangdong, large amounts of fertilizer needs procuring from outside due to inadequate self supply. Since domestic fertilizer price rises with the adjustment of railway freight rates,  which, however, has no influences on importing fertilizer, whose advantage is highlighted. With geographical convenience, coastal areas will prefer importing fertilizer if price is lower than domestic price.
　　
7. Northwestern urea enterprises’ advantages decline. Taking advantage of coal resources, many urea projects were built  in NW areas. But with freight rates increasing, its advantage declines. For most urea is delivered to inner land, the far distance will increase transporting cost greatly. If freight rates rise further more, its advantage will be more weakened. 
　　
By this adjustment, railway freight rates are not set by government any more, increasing its flexibility. Operators will adjust the price within a certain ranges. In general, however, it has no great influences on fertilizer freight rates, for fertilizer enjoys preferential rates, it is not likely to depend on the price adjustment or discount of railway department.

From “China Fertilizer Market Weekly Report”