[Domestic News] Compound Fertilizer: In the first quarter, it experienced a volatile consolidation period. The second quarter may face downward pressure.

Introduction: In the first quarter of 2023, spring fertilizer preparation arrived in the market, with supply and demand in February significantly higher than the same period last year. However, in March, the demand weakened, and the market for spring and summer fertilizer preparation became cautious, with a slowdown in delivery pace and a "cooling" market. In the second quarter, the positive impact of demand for spring and summer fertilizer preparation increased, and the expected raw material costs were lower, resulting in a positive/negative game. Therefore, Zhuochuang Information predicts that the compound fertilizer market in the second quarter may be under pressure, and the scope of price reductions may be limited.
Ⅰ. compound fertilizer high quotation, guaranteed pre-harvest mainly.

In the first quarter, the domestic compound fertilizer market fulfilled the winter storage prepayments and the spring and summer fertilizer prepayments. In January, with the festive atmosphere of the Spring Festival, the market maintained a stable trend due to a small number of new orders before and after the Spring Festival. As it entered February, winter storage orders were concentrated and shipments were the main focus. Most fertilizer companies' policies such as winter storage guarantees and preferential delivery gradually expired, resulting in reduced discounts for new orders and a shift in transaction focus. In March, the spring and summer fertilizer prepayments began, and a new round of sales policies became clear, still mainly based on provisional continuation of previous quotations and prepayments as guarantees, ranging from the end of April to May 20th.

According to data from Zhuochuang Information, as of March 31st, the ex-factory price of China's 45% compound fertilizer was 3,324 yuan/ton, a decrease of 0.66% month-on-month and a decrease of 9.16% year-on-year. From January to March, the price difference between the high and low prices of China's 45% compound fertilizer was 36 yuan/ton, with the peak value appearing in February and the low value in early January. In February, more large fertilizer companies clearly quoted prices, resulting in a shift in the average price focus upwards.

Grassroots fertilizer demand supports the need for timely procurement to avoid risks. According to Zhuochuang Information, from January to March, grassroots fertilizer demand mainly focused on top-dressing wheat and early rice, concentrated in February and March. Due to reduced sales during the winter storage phase, social inventory levels were relatively low. To avoid risks during the peak fertilizer demand season, procurement was done on an as-needed basis, resulting in more active market trading compared to previous years, with better sales performance in February. According to Zhuochuang's demand model data, the market demand for fertilizer was around 4 million tons in February, an increase of approximately 33.33% compared to the same period last year. In March, the peak fertilizer season resulted in decreased demand as the focus shifted to digesting social inventory. Therefore, Zhuochuang's demand model estimates that fertilizer demand from January to March was 10.8 million tons, a decrease of 6.09% compared to the same period last year.

Fertilizer companies adopt a sales-driven production model with significant fluctuations in production. To avoid risks from excessive inventory, fertilizer companies strictly control their current stock levels, with sales determining their production levels. As the market's procurement demand changes, fertilizer companies adjust their production levels accordingly. According to Zhuochuang's data, the cumulative production of compound fertilizer from January to March 2023 was 14.15 million tons, an increase of 1.95% compared to the same period last year, which is closely related to changes in production capacity utilization rates. Production capacity utilization rates in February were higher than the same period last year, while rates in January and March were lower, reflecting demand trends. Due to the Chinese New Year holiday, the compound fertilizer production capacity utilization rate reached a low point of 27.74% in January. After the holiday, the compound fertilizer market improved, and the production capacity utilization rate continued to increase to around 57.48% in early March. As market trading gradually weakened, fertilizer companies were forced to reduce their load or stop for maintenance, resulting in a gradual decrease in production capacity utilization rates. As of March 30th, the compound fertilizer production capacity utilization rate was approximately 37.92%, a decrease of 19.56 percentage points from the peak.

Compound fertilizer raw material costs have decreased, with a significant drop in phosphorus and potassium raw materials.

According to Zhuochuang Information's 45% CL (15-15-15) cost model calculation, as of March 31st, the raw material cost of Shandong's 45% CL was approximately 2,651 yuan/ton, which was 80 yuan/ton lower than January 1st, a decrease of 2.93%. Looking at the nitrogen, phosphorus, and potassium raw materials, ammonium phosphate had the largest drop in price, while ammonium chloride had the smallest. Urea prices remained high, with limited price increases.

Ⅱ、 the outlook for the future:

There is still potential demand: In the second quarter, the compound fertilizer market is in the spring and summer fertilization stage. In April, pre-sold spring and summer fertilizers are delivered, and orders are received for spring fertilizers. In May, spring and summer fertilizers are concentrated for shipment, and cautious fertilization is maintained with low inventory turnover. In June, summer fertilization is completed, and the inventory digestion period begins with sporadic orders. Therefore, from a demand perspective, the second quarter market peak for deliveries will be in May, with a short period and heavy tasks, putting pressure on production and sales operations.

Raw material expectations are weak: Since compound fertilizer's main sales formula is concentrated in high-nitrogen fertilizer, nitrogen fertilizer's price fluctuations have the most significant impact on compound fertilizer. Looking at the urea market's expectations, the current daily production of urea is maintained at more than 170,000 tons, and the bearish effect of the oversupply on the market is becoming stronger, with the market continuing its downward trend. With the increase in compound fertilizer production in May and June, there is an opportunity for urea to rebound. For the compound fertilizer market, the decline in costs exacerbates bearish expectations among industry players.

Enterprises determine production based on sales: Summer fertilizers are produced more cautiously, and zero inventory management is more stringent. With excess capacity for compound fertilizers, short-term supply and demand pressures may form from concentrated supply. When fertilizer is needed, there is still an adequate supply of goods.

Overall, the compound fertilizer market is heavily bearish in the second quarter, with a potential shift in the price focus downward. However, due to the need to digest high-priced inventory, high asking prices and low transactions may become more prominent. Taking into account factors such as the expected decrease in raw material costs and potential demand support, Zhuochuang Information predicts that the compound fertilizer market's prices are likely to decline, with a decrease of around 100 yuan/ton.

source: Zhuo Chuang informationClick to view