China 丨ADAMA: More excellent prothioconazole products to be launched

Recently, Adama held an analyst meeting to answer some questions of public concern：

Q: Whatis the impact of higher gas prices due to the Russia-Ukraine conflict on agricultural chemical production capacity acrossEurope?

A: Europeantechnical producers are indeed under pressure due to restricted gas suppliesand we expect difficulties for European producers in the future with the supplyof some raw materials and finished products, especially for the peak season inLatin America. This is an opportunity for ADAMA and we are in the process oframping up capacity to take full advantage of the capacity layout, while we arealso closely monitoring the domestic energy supply situation.

Q: In the half-year report, your company mentioned that it is building up its core leapfrog strategy technical production capacity in Brazil and Israel, how will the production capacity in Israel, China and Brazil be distributed in the future?

A: ADAMA is not dependent on European production capacity, with Israel and China being the two main operational hubs of the company. Therefore, ADAMA has been investing heavily in the construction of its two operating bases in Israel and China to ensure that the company has a solid backward integration of production advantages. In addition, the company has invested in production assets in India and Brazil in order to secure the supply of certain technical, but the investment in capacity layout in these two regions is different from that in China and Israel. The production lines in India are mainly focused on intermediates, while Brazil is taking advantage of local incentives for some fungicide technical. Israel and China serve as operational hubs designed to meet bulk capacity requirements, with the remaining capacity locations strategically complementing the two.

Q: With extreme heat in both Europe and China this year, there are fears of extreme cold winters, how does the company predict the weather will change and what impact will it have on agricultural chemical sales?

A: It is true that some regions have experienced extreme weather recently, but globally as a whole, weather phenomena across the world are characterized by a complementary balance and at present we do not believe that extreme weather in one location has had a significant impact, despite the risk of uncertainty. Importantly underlying demand dynamics in markets across the region remain strong, thanks to good economic conditions for farmers, and we believe this will support good business development in the second half of the year. In addition, we remain cautiously optimistic about next year. Extreme weather events will still occur, but it is too early to judge a severe winter.

Q: Does the constraint on energy supply for European originator capacity generate opportunistic gains for ADAMA? Has ADAMA stockpiled the appropriate inventory for possible opportunities?

What is the current level of channel inventory given the high formulation prices in the first half of the year? Are there risks of a decline in formulation prices in the second half year? How is the promotion of your prothioconazole products? What is the market feedback?

A: We did see the impact of the restricted energy supply in Europe and it also spilled over into prothioconazole. Against this backdrop, ADAMA has taken full advantage of its strengths to prepare its stocks for the second half year, both to secure sales demand and to enable us to consume them in a healthy way through the channel. ADAMA’s investment in India capacity is partly to supply materials for the production of prothioconazole, while prothioconazole capacity will be expanded in Israel in anticipation of increased sales of prothioconazole and production in Brazil is also being expanded. We are preparing our stocks for the second half year and, as Yoav, head of IDR, explained, ADAMA is strengthening its strengths in the application of innovative formulation technologies to enhance product differentiation, with Armero, a product containing prothioconazole, being a good example, and more excellent products containing prothioconazole to be launched over the next 18 months. For the full year, we are confident that we expect prices to achieve year-on-year increases to help us overcome the negative impact of rising cost factors.

ADAMA(Huifeng) is currently in the midst of an orderly production climb, but after a three-year halt, the process of resuming production has encountered some unanticipated challenges. At present, the government licenses required for the resumption of production of Huifeng's production lines have been in place, and the conditions for full resumption of production have been in place, which will strengthen the production layout of ADAMA and restore the cooperative relationship with third parties.

Q: In the first half year, ADAMA saw a significant year-on-year growth in fungicides and a negative growth in insecticide. However, the price index fluctuations of the two are very similar. What is the reason for the difference in sales performance between the two categories? The half-year report mentions significant growth in the fine chemicals business in China, was this growth mainly driven by volumes or prices? How did this business achieve growth in the second quarter in the face of poor macroeconomic conditions?

A: As far as sales of the three plant protection categories are concerned, herbicide sales are rarely affected by weather, while fungicide and pesticide sales are significantly affected by weather. Sales of fungicides and insecticides can change significantly in hot, humid or dry weather. The outperformance of fungicides in this reporting period was mainly due to the economic environment in the Latin American and US markets, and the difference in sales between the two categories mainly reflects the impact of weather rather than the configuration of the product lines themselves. ADAMA 's product line portfolio has a strong market position.

With regard to the strong growth of the fine chemicals business in China, the strength of this business is largely dependent on the strength of market demand for basic chemicals. The company's fine chemicals, including chlorine and phosphorus trichloride, are not only used in the plant protection industry, but also supplied to other industries, such as battery manufacturing. With strong market demand for these products in the first half of the year, ADAMA has seized the opportunity to capitalize on its production capacity to achieve sales growth and stronger price drivers, which have risen continuously over the past nine months.

Q: How many patented products does ADAMA currently hold?

A: ADAMA 's differentiated and patented products currently contribute around one third of sales, and we aim to reach 50% in the future. ADAMA 's investment in patents covers not only products, but also formulation technology and process patents.