Hello all and welcome to our webinar, China’s
Fertiliser Industry – Overcoming overcapacity, low efficiency and environmental damage. I hope you are all doing great and are ready
to learn more about China’s market. My name is Patrick and I will guide you through
this webinar. By my side is Elizabeth, our fertiliser expert
to give you her insights in the market today. Hello everyone. All the information we provide today are given
by our China fertiliser market intelligence brand CCM and global trade analysis firm Tranalysis. You can find all the details and much more
in our monthly phosphate newsletter or industrial reports. Don’t forget to contact our team if you
have any questions or inquiries regarding China’s fertiliser industry. To prepare you for the information we will
learn today, let’s have a look at the agenda: First, we will have an overview about China’s
fertiliser business in 2017; Then we will talk about the promotion of organic
fertilisers in China. The next topic will be Agricultural supply-side
reform; Followed by the new Environmental Tax Law. The New fertiliser types development in China
will be observed; And at the end we will also have a look at
the 13th five-year plan in China with the effect on the fertiliser industry. Without further delay, let’s go into the
presentation. The fertiliser market in China, 2016, was
marked by an overall depressed situation. However, the rebound was coming with the winter
stockpiling season at the end of the year. According to expert’s opinion, the fertiliser
business will recover again in 2017 with rising costs supporting an overall price rise. However, looking at the huge problems of overcapacity,
environmental pressure and inefficiency in the production, the market will remain weak. According to CCM’s research, the fertiliser
market in 2017 will be influenced by 5 major factors: The output is going to decrease,
the demand for fertilisers will get reduced, the export sector will remain low, a price
rise is expected due to increasing production costs, and the business will be significantly
influenced by environmental policies. Elizabeth, can you give us some more detail
about each of the mentioned points? The fertiliser output in China in 2016 was
80.11 million tonnes. However, the demand only reached 66.10 million
tonnes. Hence, an overproduction of 14.01 million
tonnes was the result. Furthermore, the capacity of fertiliser even
reached 131.67 million tonnes. This amount represents an overcapacity rate
of 50%. Looking at the very low fertiliser prices,
many manufacturers will likely lower the production, which leads to a decreasing output volume
in 2017. Three factors will reduce the demand for fertilisers
in China. Starting with low prices of agricultural products,
China’s farmers have little effort for planting, which results in a smaller planting area and
hence less fertiliser needed. Secondly, the plan of China’s government
to achieve a zero fertiliser usage growth till 2020 leads to high innovations in optimised
fertiliser usage and hence less demand for more fertilisers. Finally, the policy about controlled release
of fertilisers in North China forces farmers to use fewer fertilisers, which also decreases
the demand of those. In 2016, China has cancelled beneficial policies
for the fertiliser industry. Hence, exporters are witnessing higher costs,
getting less competitive on the international fertiliser market. The market capacity is also growing, which
reduces the export volume of Chinese exporters even more. Industry experts estimate a decline by up
to 10% in China’s export volume. Before you go on… According to Tranalysis, the export volume
of fertiliser slumped down in 2016 with a decrease of 22.41% compared to 2015. Furthermore, Chinese manufacturers are not
looking forward to the exports in 2017, which is due to higher production costs and resulting
in less competitiveness on the world market for fertilisers. Can you tell some more details about the export
situation of fertilisers in China? Sure. The surging export trend in China came to
an end in 2016, which witnessed a decrease of the export volume of fertilisers for the
first time in eight years by 22.41% year on year. The largest drop in exports was seen for ammonium
sulphate, whose export volume dropped by 35.6% to 8.86 million tonnes in 2016. As a result of the sluggish export of fertilisers
in 2016, China’s manufacturers had to suffer losses for the first time since many years. According to CCM, there are several reasons
which back up the significant export drop in 2016. The global output and capacity of fertilisers
did rise again, which caused a fierce market competition and lowered the prices of manufacturers
to keep some share of the world market. Chinese competitors even faced a worse situation
in 2016, looking at increasing production costs while overseas manufacturers enjoyed
some cost reductions. The increasing costs in China were caused
by the abolishment of favourable policies for the fertilisers industry and rising prices
of energy, transportation and raw materials. Overseas manufacturers took benefits from
sinking gas prices on the world market. What’s more, the situation of fertilisers
export from China will hardly improve in 2017. The production costs for Chinese manufacturers
are still higher than those of the competitors overseas. The global capacity of fertilisers will likely
even increase, leading to a rising market competition. Even China’s government will adjust the
export tariffs of fertilisers again to ease the situation of manufacturers, Tranalysis
doesn’t expect any larger changes in the export business for 2017. The rising production costs of fertilisers
are expected to play the main role in pushing up the fertiliser price in 2017. It’s estimated that the average prices in
2017 will be USD14.39–57.56/ per tonne higher in 2016, resulting in the price rises of raw
materials, including phosphate ore, sulphur, urea and liquid ammonia, and the increasing
costs for transportation fees, coal and electricity. As the environmental regulation in China becomes
increasingly stricter, environmental policy is another important factor influencing the
fertiliser business in 2017. Under a stricter regulation, the production
costs of enterprises increase, which, in turn, may force them to adjust operating rates. In the progress of establishing a more sustainable
agriculture and stop the rising consumption of chemical pesticides and fertilisers, China’s
government has revealed the plans to replace chemical fertilisers used for tea, fruits,
and vegetables with organic fertilisers. This policy should lower the dependence of
China’s farmers on chemical fertilisers and increase efforts against public health
risks. According to the Ministry of Agriculture of
the People’s Republic of China, the use of organic fertilisers as replacement of chemical
fertilisers is one of the key points in China’s agricultural supply-side structural reform. The plants which are the main target for the
trial fertiliser-replacement program are fruits, vegetables, and tea crops. What can you tell us about this ambitious
plan Elizabeth? The MOA has set the goal to 50% replacement
of chemical fertilisers by organic fertilisers for the aforementioned crops. Due to the fact, that the fertilisers for
fruits, vegetables, and tea are accounting for about 40% of total fertiliser use in China
nowadays, the efforts of China’s government will lead to a total replacement of chemical
fertilisers by 20% until 2020. After the demonstration period in 2020, China
wants to expand the replacement of chemical fertilisers to the whole country. This would leave to a massive decreasing usage
of chemical fertilisers in China, according to the National Bureau of Statistics. After all, China used 60.32 million tonnes
of fertilisers in 2015. The amount used for vegetables, fruits, and
crops was accounting hereby for 24 million tonnes, thus 40% of the total usage. If China is able to replace chemical fertilisers
by 50% or more, a large reduction of 20% in total will be the result. However, the MOA is facing several difficulties
to realise the plan in the near future. Although China is producing an annual amount
of 16 million tonnes of organic fertiliser, only 5 % are an effective nutrient. Hence, it is impossible to replace the aimed
5 million tonnes of chemical fertilisers with barely 800,000 thousand usable organic fertilisers. Also, chemical fertilisers still are much
cheaper than their green alternatives and also easier to transport. After all, the production of the same number
of nutrients for organic fertilisers costs about 400% of their chemical counterparts. In addition to that, the main organic fertilisers
are made of livestock manure, which is containing a dangerous number of antibiotics, which are
able to get into the crops for human consumption. According to CCM, only an increasing focus
on enhancing the production of commercial organic fertiliser can effectively improve
China’s organic fertiliser situation and makes the plan likely to be realised in the
near future. Other ways of increasing organic fertiliser
production, like straw incorporation, compost, and green manure, obtain a much lesser opportunity
for effective organic fertiliser growth. We heard that the bespoke efforts are part
of China’s agricultural supply-side reform. This reform is going to transform China’s
fertiliser industry significantly. The fertiliser industry is one of the main
drivers for grain security and agricultural production in China. However, this industry is now suffering from
a series of problems including severe overcapacity, relatively low nutrient use efficiency, and
environmental damage as well as resource wastage triggered by the misuse of fertiliser. Hence, the Chinese government is responding
to the promotion of the agricultural supply-side reform. Coordination and cooperation are key aspects
in advancing supply-side reform and eliminating outmoded capacity. What strategies are behind the new reform? A key strategy in the supply-side reform is
the development of new types of fertilisers by over 30% till 2020. Currently, the share of new ones in the market
is below 10%. This shall reduce the overcapacity of outmoded
and low-level fertilisers. To achieve this ambitious growth, the government
encourages companies to coordinate and combine their resources such as technologies, capitals,
channels, services, and even brands. Therefore, joint innovation, research, production
and promotion can support transformation and improvements in this industry. Furthermore, a better competition of Chinese
manufacturers in the fertiliser world market can be achieved by cooperative relationships
of domestic producers as well as partnerships with overseas enterprises to get better access
to international markets. As a matter of fact, this cooperation is already
ongoing nowadays. For example, the three Chinese manufacturers
Yunnan Yuntianhua, Guizhou Kailin, and Wengfu Group already agreed to purchase their sulphur
material collective in order to reduce costs. Guizhou Kailin also made a deal with Sinofert
Holding Limited for strategic cooperation on the purchase and sale of fertiliser. I think now it is time to talk about the new
environmental tax law which will come into effect in January 2018. The new Environmental tax law in China was
approved by the end of 2016 and will come to effect on January 1, 2018. The new law contains taxable pollutants, taxpayers,
the amount of taxes, as well as the exemption score. It will mainly replace the current pollution
discharge fee. It is necessary, because, under the old law,
many local governments in China have been put more focus on the economy growth on the
costs of the environment. Some pollutant manufacturers were even allowed
to pay fewer pollution fees when their contribution to the economy was big enough. To ensure a smooth transition from the existing
discharge fee system to the new system of environmental tax, taxable items, taxation
basis and tax amount standards will be set according to the current discharge fee system
standards, and those eligible for environmental tax will be the same as those who were eligible
for discharge fees. The new law is the first one of its kind in
China, aiming to get successful actions against the growing pollution in the country and protect
the environment from heavy pollution discharges of several industries. The key factor to convince enterprises establishing
environmental friendly productions and discharge systems lays in a tax reduction for significant
pollution reducing actions. Can you give some insights into the differences
of the old and new pollution system? Okay, one key difference to the old system
is the tax break. It tax allows a tax reduction of 25%, if the
pollution discharge, mainly wastewater and air pollution, is 30% lower than the national
or provincial standard for this pollution concentration. If the company is even able to keep its pollution
50% lower than the standard concentration, they can apply for a 50% tax reduction at
all. So, the system clearly benefits environmental
protection solutions of enterprises with lowering their costs. Besides air and water pollution, also noise
pollution will be charged by taxes. The other key difference can be found in the
tax collection management. As in the current system, the pollution taxes
are being collected by the corresponding environmental authorities. The new law, however, will make tax authorities
responsible for the collection. This process will make the collection much
more standardised. A side effect of the new law is an estimated
boom of tax revenue for the government, surpassing USD7.19 billion. Furthermore, the reward for low pollution
will likely lead to an intense research in new energy and environmental protection opportunities. What’s more, China’s government is increasing
efforts to promote the development of new and more efficient fertilisers. Looking at China’s outdated and oversupplied
fertiliser industry, some new types of fertiliser are likely to enter a period of rapid growth
during and after the 13th Five-year Plan, from 2016-2020, including water soluble fertiliser,
medium and microelement fertilisers, soil conditioner and biostimulant, to ensure the
modernization of this industry. In recent years, the fiercely competitive
and overcapacity market has forced some fertiliser producers to transform or upgrade and increase
investment in the R&D of new products, which has accelerated the development of new types
of fertiliser. The most promising fertiliser in China are
controlled-release fertiliser, value-added fertiliser, and water soluble as well as liquid
fertiliser. What can you tell us about these promising
new fertiliser types for China? China began research into controlled release
fertiliser last century, and large-scale industrialisation took place after 2000. As of late 2015, production capacity and output
had risen to 6.20 million and 3.20 million tonnes respectively, and consumption remained
stable at around 3 million tonnes. Value added fertilisers refer to fertilisers
to which natural active substances are added during the production process, and include
seaweed fertiliser, humic acid fertiliser, amino acid fertiliser, microbial fertiliser
and medium and microelement fertilisers. Reportedly, the global market size of value-added
fertilisers currently reaches USD1.4 billion, USD0.2 billion of which comes from China. Since 2012, China has introduced many policies
regarding the integration of water and fertiliser, stimulating technological development in this
sector and the rapid growth of water soluble fertiliser and liquid fertiliser, such as
water flush fertiliser and foliar fertiliser. Science and technology are likely to guide
the future development of the industry, and accordingly, advanced products are expected
to replace existing outmoded ones which are suffering from overcapacity. As capacity consolidation improves, science
and technology will play a more important role for enterprises, and those new types
of premium fertiliser will possibly capture more market share in the future. As the last topic for today, what is worth
mentioning about the 13th five-year plan for the fertiliser industry in China? On 5 Jan. 2017, the State Council issued the
Scheme of Energy-saving and Emission Reduction in the 13th Five-year Plan Period. In this scheme, the major objectives, key
assignments and specific measures for the energy saving and emission reduction are illustrated,
which is expected to make big impacts on the future development of the fertiliser and pesticide
industries. According to the Scheme, no new capacity projects
can be approved in the severe overcapacity industries, no matter what the forms and ways
are. What’s more, China will make great efforts
to promote the resource-conserving agriculture technologies and clean agricultural production. Specifically,
-Promote the collection processing and utilisation of faeces in the livestock and poultry farms
-Encourage the construction of treatment facilities for organic waste, such as straw and faeces
-Advocate the increase of organic fertiliser and fertilising technology by testing soil
-Carry out prevention and control for crop diseases and pests
-Promote the use of high efficacy, low toxicity and low residue pesticides By 2020, the usage amounts of both fertilisers
and pesticides applied in the main crops should achieve zero increases, and the utilisation
rate of fertiliser should increase to more than 40%. Notably, the objectives should be realised
by 2019 in the Beijing-Tianjin-Hebei, Yangtze River Delta and Pearl River Delta regions. Under the background of national environmental
regulation, the fertiliser industry should optimise industrial structure, reduce energy
consumption and promote product upgrading. Some leading enterprises are encouraged to
extend their developments in the ecological fertiliser sectors. For example, humic acid fertiliser is an effective
one, which is able to improve fertiliser efficacy and reduce the fertiliser usage amount. In additional, the production technique and
equipment need to be advanced and pollutant discharges decreased. Also, the industry should speed up its pace
of eliminating outmoded capacities. Besides, via enlarging investment in science
and technology, enterprises can extend their supply chains, strengthen the utilisation
of waste (such as phosphogypsum), increase the resource utilisation rates and the added
value of products, so as to meet required environment standards and release profits. That leads us to the end of this webinar. Thank you all very much for attending and
we hope you could get some key points out of the presentation. All the information today was enabled by our
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