RAW MATERIAL ESCALATES, LOW CHANCE OF REDUCING FERTILIZER PRICE

Fertilizer price at the beginning of 2021

Global market:

Source: World Bank

According to data from the World Bank, in May 2021, the price of urea was at $331.63/ton and of DAP was at $574.63/ton. Both of these fertilizers had a growth rate of nearly 50% over the same period last year. The worldwide supply of urea is predicted to be scarce, causing the fertilizer price to continuously increase till the end of 2021. Specifically, at the end of June 2021, the FOB price of urea in the Black Sea increased to 420 – 435 USD/ton, which was the highest level since 2013. The FOB price in China reached 435 – 445 USD/ton and 450 – 460 USD/ton in the Middle East. Besides, in July, supply from major urea-producing countries will continue to decrease as many factories carry out maintenance, which will have pushed urea prices along with Chinese exporters to stop bidding. 

Following the same upward trend as urea, in May 2021, the potassium price continued to increase in the context of scarce supply, geopolitical fluctuations (changes in the behavior of countries under the influence of geographical factors), and some major distributors stopped offering prices. Hence, pre-signed orders are not guaranteed due to supply shortages. In Southeast Asia, the bid price was 400 USD/ton CFR for standard potassium powder, 430 – 450 USD/ton CFR in northwest Europe; 500 – 550 USD/ton CFR in Brazil.

In India, high demand along with China’s increase in export tax has kept the price of DAP fertilizer still high at 590 USD/ton CFR. The price of MAP fertilizer in Brazil’s market on June 27 was at 753 USD/ton CFR. In that context, some manufacturers even stopped selling to keep track of market fluctuations or sold materials inventory to lock in profits instead of producing more NPK. As the input material prices in the world show no signs of slowing down, the price of NPK fertilizers in July is forecasted to rise.

The escalation of world fertilizer prices resulted from rising energy and raw materials prices such as ammonia and sulfur, etc. Prices of input materials of the fertilizer industry have increased by 30-40% since the beginning of 2021. This, therefore, has a direct impact on urea, DAP, sulfur, etc. In which, gas prices at the end of June 2021 have increased sharply due to unusually cold weather, pushing up spot prices of liquefied natural gas (LNG) in Asia, Europe, and Western America.

China, which is the world’s largest fertilizer production and consumption market, recently has faced a coal and gas crisis. This event has indirectly affected the fertilizer industry, causing a decrease in supply. Prices of anthracite and bituminous coal, which are the main raw materials for urea production in China, have increased sharply. Currently, the Chinese Government is restricting fertilizer exports to prioritize domestic crops, causing a shortage of world fertilizer supply.

In addition, the complexity of the covid-19 pandemic in the world has caused a rise in freight rates and a serious shortage of empty containers. This has pushed up sea freight rates sharply. Many sea routes have increased by over 100%. This is also one of the reasons for the escalation in global fertilizer prices.

In Vietnam market:

Meanwhile, in Vietnam, the selling price of domestic fertilizer products in Q1/2021 was still maintained at a lower level than the world price. Therefore, there is a large amount of urea exported. However, from the beginning of April 2021, because the low-priced inventory has run out, the fertilizer price level in Vietnam has also been adjusted up according to the general price in the world market. 

Source: VIRAC

Factors that affect the domestic fertilizer prices

Prices of raw materials

Each type of inorganic fertilizer includes different chemical components. Hence, the input materials for the production of fertilizers are also different. Inputs for producing urea include coal and natural gas; Phosphate fertilizer production requires phosphate rock and apatite ore; potassium fertilizer production needs potassium ore; fertilizer production DAP, MAP need some trace components and sulfur, sulfuric acid. The rise and fall of these materials will inevitably affect the price of fertilizer.

The significant increase in the world price of raw materials for fertilizer production is the main reason leading to the escalation of domestic fertilizer prices. Recorded in June, sulfur, which is the main raw material for the production of DAP and MAP, has increased more than 2 times, from 95 USD/ton to 280 USD/ton. Similarly, the price of ammonia (NH3) has increased by 31.4%, equivalent to an increase of $102/ton.

The law of supply and demand and the volatility of the Chinese fertilizer market

The sudden increase or decrease of fertilizer supply and demand in the world causes fertilizer prices in the world to fluctuate accordingly. In particular, fluctuations from countries with large supply and demand in the world such as the US, China, Japan, etc. have a great influence on the price balance. The recent increase in Vietnam fertilizer prices is mainly due to the direct impact of the world fertilizer market.

China is the largest fertilizer export market to Vietnam, accounting for over 43% of the country’s total fertilizer import volume and turnover in the first 4 months of 2021. Therefore, China’s imposition of fertilizer export taxes up to 30% as well as export restrictions also has a huge impact on fertilizer prices in Vietnam.

Movements of Governing Body and Enterprises

On the side of enterprises

PetroVietnam Fertilizer and Chemicals Corporation (PVFCCo), is maximizing output, quickly dispatching goods to regions, promptly serving farmers in order to meet the fertilizer demand for domestic agricultural production. In the middle of June 2021, the total output of Phu My fertilizer produced by PVFCCo reached more than 400 thousand tons; in which, urea fertilizer accounts for more than 256 thousand tons. In particular, Phu My NPK output increased by 50% over the same period in 2020.

For imported fertilizer products that cannot be produced domestically such as potassium, from the beginning of the year, PVFCCo has promoted long-term contracts, looked for new sources of goods. Therefore, the signed contracts in the first 6 months of 2021 were estimated at 170,000 tons. Its supply also reaches 90,000 tons, an increase of 50% compared to the same period in 2020. As a result, by mid-June 2021, PVFCCo has supplied to the market about 555,000 tons of Phu My fertilizer, reaching 99.7% of the plan for the first 6 months.

Similarly, another fertilizer producer of PVN, PVCFC (Ca Mau fertilizer), intends to operate 105% of its urea production capacity as well as supply to the market 25,000 tons of NPK of all kinds for the summer-autumn crop. Besides, PVCFC also implements the policy of adjusting the selling price according to the general market price but also focuses on the goal of harmonizing the customers’ benefits. In addition, PVCFC also requires distributors to timely supply goods when receiving goods from manufacturers, avoiding the situation of hoarding goods to make a profit at the intermediary stage where farmers do not benefit.

On the side of the Governing Body

In the context of high fertilizer prices, from the beginning of April 2021, the Ministry of Agriculture and Rural Development has assigned the Plant Protection Department to re-evaluate the situation of production and distribution prices of fertilizer products. The purpose is to ensure that it does not affect the production of the people. The Ministry of Agriculture and Rural Development has worked with large fertilizer manufacturers and recommended minimizing exports, maximizing machine running capacity, and adjusting priority product distribution channels to the key regions. These efforts are intended to maintain stable domestic production and reduce the negative impact of the increase in fertilizer prices on agricultural production.

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