The article discusses the ongoing challenges in the phosphorus chemical industry, highlighting how the downturn in downstream phosphate fertilizer production is now affecting upstream phosphate rock mining and processing. Analysts have noted that the first-quarter performance of Hing Fat Group has declined, signaling a broader trend of decline within the industry. This downward movement may persist throughout the year, as the entire supply chain continues to face pressure.
Since the second half of last year, the domestic economy has experienced increasing downward pressure, with many industries struggling from overcapacity. The phosphorus chemical and fertilizer sectors are no exception, as international phosphate prices remain low, making it difficult for Chinese manufacturers to compete in export markets. As a result, prices for phosphorus-based chemicals have been on a steady decline.
According to the Business Club’s phosphorus chemical industry price index, after a slight 3.55% increase in 2022, most phosphorus chemical products entered a downward trend in early 2023, with the overall sector index falling by 0.62%. Many leading companies in the downstream segment have also reported declining performance. For example, Hubei Yihua saw its operating income and net profit drop by 16.68% and 45.12%, respectively, in the first quarter of this year.
The impact of the downturn has started to move upstream, affecting phosphate rock mining and processing. Xingfa Group mentioned in its mid-year report that the phosphate ore market has undergone significant changes. Prices have fallen by more than 20% year-on-year, while rising costs and increased tax burdens have further squeezed margins. This has led to a sharp drop in average operating profits, contributing to the company's first-ever decline in half-year performance.
Analysts suggest that major listed companies in the phosphate chemical industry, such as Zhongyuntianhua and Liuguo Chemicals, may experience mixed results this year due to the ongoing decline. Integrated companies, which dominate the industry, are at higher risk of reporting year-on-year declines of over 20%, even without an increase in sales volume.
Export challenges continue to weigh heavily on the sector. In 2013, the export season was already weak, and India’s fertilizer subsidies, along with concentrated international production capacity, have kept global prices low. With current export tariffs and weak demand, domestic manufacturers are facing pressure, particularly at ports where shipments have slowed.
Some analysts note that many phosphate fertilizer producers are currently operating at a loss but still struggle to ship their products. This situation could indicate a broader risk of depression across the entire phosphorus chemical and fertilizer sector.
Hing Fat Group executives recently admitted that it is difficult to predict the market trends for the phosphate chemical industry this year. According to analysts, the key factor determining the industry's performance lies in the health of the downstream phosphate fertilizer market. Although global demand for phosphate fertilizers is expected to recover this year, oversupply and weak Indian procurement continue to weigh on China's export prospects, keeping the outlook grim.
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