The coronavirus outbreak may create new opportunities for the fertilizer industry to improve utilization rates and solve various soil problems, Dutch Bank Rabobank said in a report.
China is a leading producer of phosphates, with output of around 13.7mn t in 2018. Although the Chinese government has told local governments to ensure fertilizer supply and maintain largely stable prices for the coming spring application season, companies in Hubei, the epicentre of the outbreak, will not be able to reopen until 11 March. Hubei is responsible for 28pc total phosphate production in China, according to Rabobank.
Since the beginning of the coronavirus crises, the fertilizer industry utilization rate has dropped by about 30-40pc year-over-year, leading to a drop in production, according to Rabobank.
In a best-case scenario, where the outbreak is well controlled, the transportation restrictions could be lifted in March — the peak season for phosphate production — and demand will increase to make the most of the short farming season. Phosphate fertilizer prices would then rise.
But if the outbreak takes longer to control, crop production demand will drop and phosphate demand will fall far below prior years.
In 2019, Chinese DAP export volumes declined 24.9pc from 2018, to 6.47mn t. This drop was mostly because of new capacity in the Middle East. In addition, India and Pakistan, the major importers of Chinese phosphate fertilizer, continue to reduce imports, due to their high inventories. This scenario made China DAP prices less competitive overseas.
The coronavirus-induced drop in fertilizer production could fuel other changes in the industry as well. Most Chinese phosphate fertilizer players are still focusing on DAP and MAP production with little added value, according to Rabobank. The current crisis could influence industry to develop specialty fertilizers with features that provide comprehensive nutrition for crops, improve fertilizer utilization rates, and solve various soil problems.
"The era when the market was dominated by products is over and will be replaced by the dual drivers of ‘product + service' in the future," said Rabobank
By Kauanna Navarro
