Global Fertilizer Shortages, Soaring Prices

With high grain prices and low inventories, the boom in chemical fertilizers is expected to continue under the agrochemical cycle. Since 2021, domestic and foreign grain prices have continued to rise and remain high, and the international grain and oil depot-to-sales ratio has hit a 15-year low. Driven by tight supply and inflation, grain prices are easy to rise and hard to fall. On the demand side, the high grain price will drive the demand for the fertilizer industry to increase. According to Mosaic, the growth rate of my country's phosphate fertilizer demand in 2022 will be between 3.5% and 6.4%. On the supply side, in the medium and long term, the supply-side reform of phosphorus chemical industry continues to deepen, and the strong resource attributes gradually emerge. In the short term, global and domestic phosphate fertilizer inventories are at a low level, and the conflict between Russia and Ukraine will further aggravate the shortage of global fertilizer supply. We believe that the high boom of chemical fertilizers under this wave of agrochemical cycles is expected to continue for at least 1-2 years, and the high profit margins of chemical fertilizers It will lay the foundation for the performance of phosphorus chemical enterprises.

The export of chemical fertilizers is restricted, and the industry boom may continue with the relaxation of export restrictions. Driven by high grain prices, raw material prices and downstream demand, the current fertilizer prices are firm, and we are expected to see prices rise again when the spring ploughing season is approaching. According to Wind data, the current weekly average price of the domestic monoammonium phosphate market (58% powder, East China) is 3,720 CNY/ton, a month-on-month +5.5%, and a year-on-year +40.9%; the weekly average price of the urea market (Shandong area) 2,992 CNY/ton , +2.7% month-on-month, +39.1% year-on-year; the average weekly price of potassium chloride market (60% powder, Qinghai area) 4667 CNY/ton, month-on-month -2.2%, +128% year-on-year. At the same time, the international phosphate fertilizer price brought by the export ban and the domestic price formed a large price difference of more than 3,500 CNY/ton. The market expects that the country may release the export restrictions on chemical fertilizers after the spring ploughing. As the peak season of overseas demand is approaching, the boom in fertilizers is expected to continue under stronger price hike expectations.

The supply gap of iron phosphate in 2022 will still exist. At present, the total domestic production capacity of iron phosphate is 645,000 tons, and the total production capacity of lithium iron phosphate is 776,000 tons. The supply of iron phosphate is in short supply. From the perspective of the expansion plan, phosphorus chemical companies will be the main force for future expansion of iron phosphate, accounting for 55% of the total expansion plan; from the perspective of the expansion rhythm, it is expected that iron phosphate will still be in a state of mismatch between supply and demand in 2022. The tight balance between supply and demand is expected to be maintained until mid-2023; from the actual progress, the expansion of iron phosphate will be subject to environmental impact assessment, energy assessment, process and other restrictions, and the downstream product verification cycle may lead to lower-than-expected production capacity release . Therefore, we are optimistic about the continuation of the iron phosphate boom under the mismatch between supply and demand.

The medium and long-term phosphorus chemical resources have prominent attributes, and the supply-side reform continues to optimize the industry competition pattern. At present, domestic phosphate rock resources are facing the pressure of shortage. At the same time, with the joint restrictions of various supply-side control measures such as carbon neutrality, dual control of energy consumption, and production capacity indicators, we will see that some companies with leading resource endowment layout will show better performance. strong competitiveness. While industry profits are more upstream, the industry competition pattern will also be continuously optimized. At present, the leading enterprises of phosphorus chemical industry have basically completed the integration of upstream resources, the integration of the industrial chain has been improved, and they have sufficient resources, cost, energy consumption indicators and other advantages.