Since the beginning of this year, the overall efficiency growth of the domestic chemical industry has slowed down, and the increase in revenue and profit has been lower than the level of the same period of last year. Guotai Junan industry analyst Cui Yiyi believes that the reform of the chemical fertilizer circulation system is about to start. It is expected that the production cost per ton of urea will increase by 440 yuan, and urea companies will face greater cost pressures.
Due to the continued rise in energy prices and the tight supply of some products, the domestic chemical market continued to maintain a high level of turmoil. However, it is worth noting that although the efficiency of the chemical industry rebounded rapidly in the second quarter, the industry’s profits declined from the first quarter's decline to a rising trend, but it could not change the overall slowdown in the industry's efficiency.
Cui Yiyi pointed out that from January to July this year, almost all sub-sectors' revenue and profit growth were lower than the same period of last year. The profits of the synthetic materials industry remained negative. In the chemical fertilizer manufacturing industry, due to entering the off-season fertilization season, profits for the month of July decreased by a year-on-year, a drop of 17.4%, and the cumulative increase in profit for January to July was far lower than last year.
According to statistics from the National Nitrogen Fertilizer Association, from January to July this year, due to the rise in coal, gas, electricity, and freight rates, the average cost of urea in coal-head enterprises increased by 75 yuan/ton, and that of urea gas companies increased by 120 yuan/ton. The average ex-factory price of urea was 1,670 yuan/ton, which was 55 yuan lower than the national maximum factory price limit. The average retail price was 1,852 yuan/ton, a year-on-year decrease of 1.1%. The increase in cost and the decrease in selling price have resulted in 180 loss-making enterprises in the nitrogen fertilizer industry in China from January to July, with a loss of 33%. Analysts believe that the state's preparation for the reform of the chemical fertilizer circulation system at the end of this year is in full swing and has to be made: canceling the urea ex-factory price limit during the year and lifting the control over the fertilizer price difference; the future will gradually phase out the various benefits for fertilizer production. Policy, change the policy directly to limit prices to adjust market supply and demand to regulate prices, and establish direct subsidies for farmers.
At present, China’s fertilizer production enterprises enjoy preferential policies such as national preferential gas prices, electricity prices, railway tariffs, and VAT exemptions. If these preferential treatments are cancelled, it is expected that the average production cost per ton of gas urea will increase by approximately 440 yuan (not considering taxes for the time being. ), that is, when the ex-factory price of urea must reach 2110 yuan / ton, companies can maintain the current level of profitability.
Therefore, after the reform of the chemical fertilizer distribution system, urea companies will face greater cost pressures. Enterprises that used to rely solely on preferential policies to make profits will have a hard time surviving, and companies that focus on technological transformation and reduce production unit consumption will have more room for development.
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