Phosphorus chemical industry chain is spreading to upstream

The phosphorus chemical industry chain is showing signs of decline, with the downturn in phosphate fertilizer beginning to affect upstream segments such as phosphate rock mining and processing. Market analysts have pointed out that the recent performance drop at Hing Fat Group signals a broader trend, indicating that the downward pressure on the entire industry may persist through at least the first three quarters of this year. Since the second half of last year, the domestic economy has faced increasing downward pressure, with many industries suffering from overcapacity. This challenge is particularly evident in the phosphorus chemical sector, where the imbalance between supply and demand has become more pronounced. Additionally, low international phosphate fertilizer prices are making it difficult for Chinese manufacturers to compete in export markets, leading to a widespread price decline across the industry. According to the Business Club's phosphorus chemical industry price index, after a modest 3.55% increase in the previous year, most phosphorus chemical products entered a downward trend in the first quarter of this year, with the overall sector index dropping by 0.62%. Many companies in the phosphorus chemical and phosphate fertilizer sectors are now showing signs of fatigue. Leading downstream firms reported declining performance in the first quarter, with some major players experiencing sharp drops in revenue and net profit. For example, Hubei Yihua saw its operating income and net profit attributable to shareholders fall by 16.68% and 45.12%, respectively, compared to the same period last year. In the second quarter, the industry downturn began to impact upstream phosphate rock mining and processing. Xingfa Group noted in its mid-year report that the phosphate ore market had undergone significant changes. The current price of phosphate ore has dropped by more than 20% year-on-year, while rising mining costs and increased tax burdens have further squeezed profits. As a result, the average operating profit of the industry has sharply declined, contributing to the company’s first-ever quarterly performance dip. A brokerage analyst told the China Securities Journal that several listed phosphate chemical companies, including Zhongyuntianhua and Liuguo Chemicals, may report mixed results this year. Due to the ongoing decline in phosphate fertilizer prices, integrated companies—now the dominant players in the industry—are likely to see year-on-year declines of more than 20%, even without considering any increase in sales volume. The analyst also warned that the current situation for phosphate fertilizer exports remains challenging. In 2013, the off-season export performance was weak, and factors such as India’s reduced fertilizer subsidies and concentrated international production capacity have kept global prices low. With current export tariffs and low international prices, domestic manufacturers are facing growing pressure. Further, during discussions with downstream compound fertilizer producers, many phosphate fertilizer companies are currently operating at a loss but still struggling to ship their products. “This could signal that the entire phosphorus chemical and phosphate fertilizer sector is facing a broader risk of depression,” the analyst said. Hing Fat Group executives recently told the media that it remains difficult to predict the full-year market trend for the phosphate chemical industry this year. According to analysts, the key determinant of the phosphorus chemical industry’s future growth is the performance of the downstream phosphate fertilizer market. While global demand for phosphate fertilizers is expected to recover this year, the oversupply, persistent low prices, and weaker procurement by India are all factors that continue to weigh on China’s phosphate fertilizer exports.

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