China is the largest fertilizer producer and consumer in the world. The country is oversupplied in nitrogen and phosphate fertilizer, and has become a significant exporter of these products in recent years. In 2016, the operation rate of urea and ammoniated phosphate were only approximately 77% and 65%, respectively, depending on how you measure capacity. Overcapacity and fierce market competition resulted in lower industry profit.
In addition, abundant availability of affordable fertilizer has led to overuse of chemical fertilizers, which has led to environmental problems. China is targeting zero growth in the use of chemical fertilizers and pesticides by 2020. Without future demand growth to absorb spare capacity, producers will continue to face serious market competition.
China is deepening its supply-side structural reform in the fertilizer sector. The focus of supply-side reform is to promote producer competitiveness. The Chinese Ministry of Industry and Information Technology (MIIT) has announced a research programme aimed at optimising the country’s fertilizer capacity. As part of the programme, fertilizer capacity considered to be outdated would be forced to close, but new and advanced capacity will be encouraged. The government may consider subsidising the construction and development of more sophisticated capacity, if the owners are willing to switch off obsolete capacity.
In turn, this article will consider the situation for China’s nitrogen and phosphate producers in more detail.
Nitrogen fertilizer overview
In China, almost all ammonia is processed into downstream products rather than traded internationally. There are five primary types of nitrogen containing products beside raw material ammonia: urea; ammonium bicarbonate; ammonium chloride; ammonium nitrate; and ammonium sulfate.
China’s nitrogen production was 41.36 million t in 2016, of which, urea production represented approximately 69% of the total nitrogen production, followed by ammonium carbonate (3.2%), ammonium chloride (6.7), ammonium nitrate (3.2%), and ammonium sulfate (3.9%). China is the largest urea producer in the world and produced approximately 62 million t of product in 2016, equivalent to 28.5 million t of nitrogen.
Chinese urea capacity increased sharply during the past 10 years, with an average growth rate of 5% per year. The country’s urea capacity reached 85 million tpy in 2015, approaching 40% of global urea capacity, compared with approximately a quarter of the world total in 2000. The growth in capacity has been stimulated by relatively abundant coal resources and a relative abundance of capital available for urea and other capital-intensive projects. In 2016, Chinese urea capacity decreased to 81 million tpy, down 4.4% y/y, primarily due to Chinese supply-side reform accelerating the closure of zombie enterprises.
This is an article written for World Fertilizer's November/December 2017 issue and abridged for the website. Subscribers can read the full issue by signing in. Non-subscribers can access a preview of the issue here.