China Potash Fertilizer Price Dip Could Prove Short-Lived, Analysts Warn

As skyrocketing prices for agricultural fertilizer threatened to hurt farmers, endanger food security and fuel inflation fears, the Chinese government moved to release potash fertilizer reserves last week in the latest bid to rebalance prices of the essential plant nutrient.

Following the Oct. 15 announcement (link in Chinese) of planned auctions of state reserves on Wednesday and Friday last week, potash fertilizer prices dropped around 10% from decade-high levels reached in August. The price declines also followed a crackdown on price-gouging by major players the Chinese fertilizer industry including probes of senior executives.

Regulators have announced a flurry of measures in recent months aimed at exerting downward price pressure on chemical fertilizers. But unlike phosphorous and nitrogen, which are mostly self-supplied, analysts warned the country's reliance on imports of potash could make any price stabilization moves short-lived.

Potash fertilizer is vital for making agricultural soil more potassium-enriched to improve crop yields. In 2020, China needed to import about half of the potash fertilizer it consumed, according to Haitong Securities Co. Ltd. China is the world's third-largest importer of potash fertilizer behind the United States and Brazil, according to World Bank 2019 figures.

The latest government data from the National Development and Reform Commission (NDRC) shows the price of domestic potash fertilizer has dropped to 3,281 yuan ($513.8) per ton, down 11.5% from Aug. 5, while imported potash has fallen back 9% to 3,647 yuan per ton from its peak on Aug. 15.

The latest price index (link in Chinese) was recorded on Oct. 15. Prices for the fertilizer hit a decade-long record between July and August, NDRC said in a press release (link in Chinese) on Wednesday.

Domestic prices for potash fertilizer had jumped nearly 75% while imported prices had soared 90%, NDRC figures show. In September, a separate report by the NDRC Price Monitoring Center said potash fertilizer shortfalls had emerged after domestic fertilizer producers began exporting to capture higher overseas prices during the spring, while in the meantime, imports had fallen.

To ensure the market supply, regulators announced on Oct. 15 that they were releasing potash fertilizer reserves through auctions. Two bidding sessions took place on Wednesday and Friday, offering up potash fertilizers supplied by state-owned CHAMPGC Holding Ltd. Corp., Sinofert Holding Ltd., and Cnccc Fine Chemical Co. Ltd. Analysts cautioned that releasing domestic reserves only goes a limited way to solving potash shortages since the reserves come from domestic firms but most Chinese potash fertilizer users remain reliant on imports.

Since the summer, the NDRC, a key macro-economic policymaking body, has taken top fertilizer producers to task, warning against price manipulation, fertilizer hoarding, and misinforming the public about surging prices. Late last month, the state planner issued detailed orders to regulators like China’s top market watchdog to ease prices and encourage the use of organic fertilizers where possible, as part of a broader effort to guarantee prices to fertilizer suppliers.

Companies accused of price manipulation are also being targeted. In late September, China’s largest potash fertilizer producer, Qinghai Salt Lake Industry Co. Ltd. (000792.SZ), was fined 1.6 million yuan for price gouging. This month, the producer said it had returned 357 million yuan of income generated from alleged illegal mining in Northwest China.

In mid-October, the state-owned firm’s deputy party secretary was put under investigation on suspicion of “serious violation of discipline and law.” Three other company executives have also been the subject of similar probes — its former chairman and party secretary in April, and the head of its production technology department in September.

Contact reporter Manyun Zou (manyunzou@caixin.com) and Flynn Murphy (flynnmurphy@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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