Why Does Fertilize Industry Fall into Serious Loss?

By CnAgri2017-04-11 15:19:28 Print

Owing to serious overcapacity, leading companies’ profits dropped greatly and listed companies saw serious loss. According to annual reports from listed companies, Sinofert saw the loss of RMB 4.636 billion in 2016, but the profits in 2015 stood at RMB 221 million; Yuntianhua’s loss reached RMB 3.359 billion; Hubei Yihua’s loss stood at RMB 1.249 billion; the loss of Liuguo Chemical, Yangmei Chemical, Liuhua and Chitianhua all was upward of RMB 100 million. Fertilizer companies who made a profit also saw a drop in profits. Stanley’s net profits in 2016 reached RMB 512 million, down 17.34% from 2015.

The direct reasons for serious loss faced by fertilizer industry in 2016 are as the followings:

(1) Owing to a great increase in coal prices, material purchase costs increased;

(2) Owing to the cancelation of discounts of power price for fertilizer production, power cost went up;

(3) Along with the resumption of VAT on fertilizer sector, operating costs ascended;

(4) Owing to the cancelation of preferential policy of railway freight for fertilizer, railway freight rose, resulting in an increase in transportation cost;

(5) Influenced by domestic and foreign economic environment, fertilizer prices dropped greatly.

However, judging from fundamental factors, serious overcapacity and a drop in planting margins are the main reasons, which still would be the main influential factors on fertilizer market in the future.

Owing to serious overcapacity, the utilization of capacity decreased. Since 2014, the operating rate of N-fertilizer and NPK fertilizer companies has been less 70%, of which the operating rate of urea companies in 2016 was less than 50%; the operating rate of NPK companies ranged at 40-50%.

The government adjusted the policy of corn purchase, resulting in a great drop in corn prices; decreasing margins of wheat and paddy planting seriously influenced farmers’ willingness to purchase fertilizer and further affected the demand for fertilizer.

Cutting down production costs, developing new products and innovating new agricultural material service models would be the keys for fertilizer companies’ competitiveness.