Fine phosphorus chemical industry will continue to boom

2010Q3 international phosphate fertilizer prices directly contributed to the overall increase in domestic phosphorus chemical industry profitability. The domestic export of phosphate fertilizer in the off-season has greatly increased, which has slowed domestic supply pressure; the domestic thermal-chemical phosphoric acid advantage shows that the price of yellow phosphorus continues to rise and the export of food grade phosphoric acid increases. We expect that the global phosphate fertilizer industry will maintain a relatively high operating rate from 2011 to 2013, and the domestic phosphorus chemical industry will continue to maintain its business climate.

The supply and demand of international ammonium phosphate was tight. The price of US DAP rose from US$400/ton at the beginning of July 2010 to US$550/ton at the end of September. At the end of August in North America, the diammonium and monoammonium stocks fell by 90,000 tons and 95,000 tons compared with July, which were 37% and 26% lower than the five-year average respectively, and continued to fall below the 5-year average level during the year.

Affected by the international price increase of phosphate fertilizer, domestic phosphate fertilizer exports exceeded expectations, leading to a slight increase in domestic phosphate fertilizer prices. From July to August, the exports of diammonium and monoammonium were 750,000 tons and 300,000 tons respectively, which eased the pressure on domestic supply. Some large-scale domestic phosphate fertilizer companies have promised that the arrival price of diammonium (64%) in autumn will not exceed 2,950 yuan per ton to ensure domestic fertilizer use and export control. We believe this will further aggravate international supply of ammonium phosphate.

The increase in the prices of international phosphate fertilizers drove the fine chemical industry in China, in line with our expectations. The price of yellow phosphorus has increased from 14,000 yuan in June to 17,000 yuan per ton in Hubei, and Yunnan and Guizhou have exceeded 16,000 yuan per ton. Food phosphoric acid exported 45,000 tons in August, an increase of 34% over the same period of last year. The domestic thermal phosphoric acid advantage is reflected. In addition, energy conservation and emission reduction measures all over the country have aggravated the tight spot situation of yellow phosphorus.

The domestic fine-phosphorus chemical industry will continue to maintain its prosperity. With the end of the wet season, the price of yellow phosphorus will also benefit from seasonal increases. The domestic phosphate fertilizer industry will also increase profitability driven by exports. We maintain the industry’s “overweight” rating, continue to recommend Xingfa Group with resource advantages, and pay attention to Chengxing and Six Nations Chemicals.

Risk Warning: The demand for international agrochemical products is greatly reduced due to the weather; anti-dumping and anti-subsidy measures of the trading countries restrict the export of domestic phosphorus chemical products; the Chinese government implements more stringent export policies for domestic phosphate fertilizers.