Forecast on supply trend of agrochemical intermediates from China

China has grown into a large supplier of agrochemical intermediates in the world. It is believed that an increasing number of agrochemical intermediates will come from China in the future even though agrochemical intermediate industry in China has been challenged a lot in recent years by environmental production inspection, production safety inspection, COVID-19, power rationing, etc. Increasing demand at home and abroad, technology upgrading and improvement of supply chain will offer development opportunities to China's agrochemical intermediate industry.

Increasing demand at home and abroad to push up supply

The output of agrochemical intermediates in China increased from about 5,070,000 tonnes in 2018 to about 5,205,000 tonnes in 2021, with a CAGR of 0.88%, and estimated to reach about 5,280,000 tonnes in 2022. It is believed that increasing demand at home and abroad will push up the supply of agrochemical intermediates in China in the few years.

Regarding the demand in China, more agrochemical intermediates are needed for pesticide TC production in the long run. During 2016–2019, Due to industrial transformation and upgrading,  pesticide TC output witnessed downtrend temporarily in China. Pesticide TC production has been monitored strictly in China through environmental inspections and workplace safety inspections. And after years of efforts, China's pesticide market has become standardised in registration, production, transportation and sale. Now, Pesticide TC output (based on 100% AI) in China rebounded from about 2,118,100 tonnes in 2019 to about 2,498,000 tonnes in 2021, with a CAGR of 8.60%.

Today, the surviving pesticide TC manufacturers are strong in competitiveness after those weak ones were washed out. And these competitive pesticide TC manufacturers have much of their production capacity in active operation. It is safe to say that China's pesticide TC industry is developing in a much healthier way. And pesticide TC output will increase reasonably in the future.

Regarding overseas demand, more agrochemical intermediates from China will be needed. The export volume of agrochemical intermediates from China increased to about 855,000 tonnes in 2021 from about 270,000 tonnes in 2018, with a CAGR of 46.85%. In 2022, the export volume is estimated to increase to about 880,000 tonnes. And that will push up the output of agrochemical intermediates in China.

Figure 1 Supply and demand of China’s agrochemical intermediates, 2018–2022E

Note: 

1. The export value in this figure is based on 2021.

2. "2022E" means the data for 2022 are estimated.

Source: CCM

 Industrial structure upgrading to strengthen supply of agrochemical intermediates

China’s chemical industry has been undergoing industrial structure upgrading in recent years. Such upgrading can raise competitiveness of Chinese chemical manufacturers, as well as help them meet higher requirements on environmental protection and production safety. Under government guidance, many pesticide manufacturers have relocated their production capacity, or launched new projects covering both pesticide products and agrochemical intermediates.

 Capacity relocation and production line upgrading

Many agrochemical intermediate manufacturers have moved their production lines from coastal regions to inland regions, or migrated into accredited chemical industrial parks. They tend to carry out the production capacity migration smartly—build new production lines in inland regions and at the same time keep their old lines running in coastal regions, so the supply of agrochemical intermediates can be stable. Some agrochemical intermediate manufacturers chose to upgrade their original production lines while relocating. More effective capacity for intermediate production is expected in the future.

Meanwhile, the Chinese government has built up lots of standardised industrial parks, and some are open to agrochemical intermediate manufacturers and their capacity migration and upgrading projects. On 28 Dec. 2021, the Ministry of Industry and Information Technology of the People's Republic of China (MIIT), the Ministry of Natural Resources of the People's Republic of China (MNR) and other ministries jointly issued the Construction Standards of Chemical Parks, and Measures for Accreditation and Management of Chemical Parks (For Trial Implementation). Since then, China has made great efforts to standardise construction, enhance evaluation and accreditation management for the safe and green development of chemical parks. By the end of Q3 2022, there had been more than 600 chemical industrial parks in China. About 46% are in East China and about 54% are in Western China and Central China. The number of government approved industrial parks is still on the rise.

New projects for pesticide products + intermediates 

Agrochemical intermediate manufacturers have also actively taken part in capacity expansion, planning lines for intermediate products along with lines for pesticides TC and pesticide formulations. As of Oct. 2022, there was about 1,604,058 t/a planned new capacity in agrochemical intermediate-involved projects. And some new projects with about 407,608 t/a capacity cover intermediate products as well as pesticide products, accounting for 25.41% of the total new capacity planned.

Figure 2 Potential capacity in agrochemical intermediate-involved projects in China, as of Oct. 2022 

Note: Capacity of some projects cannot be exactly divided into the capacity for agrochemical intermediates and that for pesticides, so here takes the capacity combined.

Source: CCM

It is worth noting that new agrochemical intermediate projects in coastal regions tend to be accompanied by pesticides TC and pesticide formulations, while those in inland regions tend to focus on intermediates only. In coastal regions Shandong Province, Zhejiang Province and Jiangsu Province, 84.38% of the agrochemical intermediate capacity planned in the new projects is accompanied by capacity for pesticides TC and pesticide formulations. By contrast, in inland regions Sichuan Province, Ningxia Hui Autonomous Region and Inner Mongolia Autonomous Region, agrochemical intermediate-only projects account for more than 80% of the total pesticide capacity so far planned there.

Technology upgrading and coming off-patent pesticides to result in more types of agrochemical intermediates

More new pesticide and coming off-patent active ingredients (AI) produced in China will need more types of agrochemical intermediates. 

China has been actively involved in developing novel pesticide AIs. During 2020–2021, China has developed 27 new pesticide AIs, including 9 herbicide AIs, 7 fungicide AIs, 6 insecticide AIs, 2 acaricide AIs, a nematicide AI, a nematicide-acaricide AI and a plant growth regulator AI. 

Moreover, lots of agrochemical intermediate manufacturers in China are engaged in production of intermediates for generic pesticide AIs. And coming off-patent pesticides will encourage more new types of agrochemical intermediates to be produced. More than 40 pesticide AI patents in China will expire by 2030, including afidopyropen, ametoctradin, aminopyralid, benzovindiflupyr, bicyclopyrone and bixafen.

Risks from raw materials, energy and transportation not be ignored

The supply of raw materials becomes tight sometimes because of environmental inspection and workplace safety inspection, power rationing and transportation restriction. The same negative factors have also impacted agrochemical intermediate supply in China in recent years. 

In agrochemical intermediate production, the cost of raw materials has been on the rise. Key raw materials for agrochemical intermediates are crude oil, methanol, toluene, propylene, aniline, phenol, benzene, etc. On average, their annual ex-works price in China is estimated to increase at a CAGR of 30.79% during 2020–2022. Since 2020, most agrochemical intermediates experienced tight supply from time to time in China and their average price has been in an uptrend; it is expected that the average price will see a CAGR of 5.28% during 2020–2022.

Figure 3 Average growth rates of ex-works prices of agrochemical intermediates and raw materials in China, 2020–2022E

Note: The data for Q4 2022 are estimated.

Source: CCM

In 2018, the pollution problems in chemical industrial parks in Guannan and Guanyun counties aroused great attention from the government as well as the public. Many agrochemical production lines were stopped or shut down.Meanwhile, environmental protection policies have become increasingly strict in China. Inevitably, China's chemical industry has had a hard time in a short period, seeing more shutdown, output reduction and higher cost spent on raw materials and waste treatment. 

In 2019, after the explosion in Xiangshui County, regular production safety inspection has become a routine in China. Usually, such inspections are carried out by local governments in Nov. And sometimes, production safety inspection and environmental protection inspection are conducted simultaneously. These inspections restrict normal production of agrochemical intermediates.

Risks also come from energy supply, mainly in the forms of power rationing and increasing electricity cost. For one thing, power rationing occurs from time to time in major chemical production provinces in China. For another, on 12 Oct., 2021, the National Development and Reform Commission of the People's Republic of China (NDRC) issued a notice on further deepening the market-oriented pricing reform of the on-grid tariffs for coal-fired power. Establishing a market-based electricity pricing mechanism is at the core of the reform. Notably, energy-intensive firms will probably face higher electricity cost since the electricity price is allowed to rise more than 20% over the government-set benchmark. That is to say, those heavy energy consuming enterprises such as yellow phosphorus producers will be faced with high energy cost in production.

Furthermore, COVID-19-induced transportation restrictions send the freight rate up in China. Since 2020 when the first wave of COVID-19 struck Central China, regional lockdowns and traffic control have impacted production and logistics of agrochemical intermediatesand delayed the operation resumption of upstream and downstream enterprises. Transportation cost in China thus has gone upward. According to China Logistics Information Center, the average price index of road transportation increased to about 1,000.61 in 2021 from about 984.97 in 2020. Especially in Q1 2022, though the Chinese Spring Festival contributed to a drop in the price index in Feb., the figure rebounded in March with a 2.03% MoM growth. It continued to climb to 1,006.40 in April, and may go higher as COVID-19 will not die down easily in the few years to come.

Supply trend of agrochemical intermediates

It is predicted that more agrochemical intermediates will be supplied by Chinese producers, and more products will be sold to India, the US and South American countries and regions. Besides, there will be more types of agrochemical intermediates in China to satisfy the production of new pesticide AIs and coming off-patent pesticides.

Nevertheless, it is worth noting that the continuing COVID-19 will keep posing threats to agrochemical intermediate supply in China. Environmental inspection, safety production inspection and power rationing will also put pressures on agrochemical intermediate manufacturers. Those manufacturers have to face high cost and unsteady supply of raw materials. At global level, the world economy has been challenged by greater downward pressures so far in 2022. The demand for pesticide TC is weak this year. And demand for agrochemical intermediates in China may shrink accordingly in the near future, which might bring down the agrochemical intermediate supply in China for the short term. 

The good news is that Chinese agrochemical intermediate manufacturers have been upgrading their technologies and in general the chemical industrial structure has been kept improving. As effective capacity for agrochemical intermediates is expanding, a solid foundation will be laid to support the future supply.

 About the Author： Kcomber Inc. is among the pioneers in agriculture, chemicals, and life science markets and industries intelligence, serving global clients since 2001. 

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