The global water-soluble fertilizer (WSF) industry is opaque, with multiple complex products and sparse and disconnected information making it a challenging sector to grasp. This is exacerbated by the importance of China, the largest producer, consumer, and exporter of WSFs. Nevertheless, it is a market that is recording strong growth as farming and irrigation techniques become more advanced.
At the end of September 2020, CRU published its first Water-Soluble Fertilizer Market Outlook. The Outlook helps provide transparency to this rapidly evolving industry and aids market participants in their strategic decision-making. The service provides estimates and forecasts of the calcium nitrate (CN), technical MAP (tMAP), monopotassium phosphate (MKP), and potassium nitrate (NOP) markets on a country-by-country basis. WSF use is generally the primary demand driver in these markets. This insight uses data from the Outlook and focuses on the importance and challenges of China’s exports.
What drives WSF demand?
The rising use of WSFs is underpinned by increasingly sophisticated agricultural technologies, higher nutrient efficiency targets, growing irrigated area and expanding fruit and vegetable cultivation. The two core drivers of WSF demand and modelled by CRU are:
► Localised irrigation: WSFs are mainly applied through localised irrigation (all forms of micro-irrigation) systems using fertigation. The rapid growth in localised irrigation is driven by the need to optimise irrigation water resources, particularly in countries with large populations and rapidly rising water demand/scarcity.
► WSF crop area: given the price premium of WSFs, generally only high-value crops such as fruits, vegetables, and tree nuts justify the use of WSFs. CRU defines these categories collectively as ‘WSF crop area’. WSF crop area accounts for approximately 9% of global area, and it has grown steadily since 1970.
The Outlook is accompanied by detailed country level data on localised irrigation and WSF crop areas.
The use of CN, tMAP, MKP, and NOP as WSFs represents a subset of the total market. These products are also used in the food, industrial, and other markets, but WSF use is the primary demand growth driver.
Chinese export growth has been rapid
Chinese exports of CN+tMAP+MKP+NOP have grown at a rapid pace in the last decade. They increased over four-fold between 2010 as overseas demand grew, product quality improved, and capacity expanded. These capacity expansions resulted in many of the largest producers and exporters globally being China based, including Shanxi Knlan (CN), Lomon (tMAP), GPCG (tMAP, MKP), and QSL (NOP).
CN accounted for 54% of Chinese CN+tMAP+MKP+NOP exports in 2019, followed by tMAP and MKP at 26% and 12% respectively, with NOP only comprising 9%. A significant proportion of these exports are for use as WSFs, with the other proportion used for food, industry and open-field applications.
Although China exports to various destinations, it ships most product to Asia and Latin America. India is the largest importer of Chinese product in Asia, while Mexico and Brazil account for large proportions of Latin American imports. Demand is set to continue growing rapily in these two regions, and Chinese producers are set to continue aggressively offering product to maintain market share.
Asia leans heavily on Chinese supply
Asia (excluding China) imported 65% of its CN+tMAP+MKP+NOP demand from China in 2019. China has ample production capacity and access to raw materials, whereas other Asian countries such as India do not.
Several Asian countries import significant quantities from China, but India is the largest. In 2019, we estimate India imported well over 70% from China. India’s GSFC has reportedly recently started producing CN, but the country is still short on domestic production.
Asia’s growing population and middle class are consuming more high-value crops such as fruits, vegetables, and nuts grown with WSFs. Excluding China, Asia’s WSF crop area is projected to rise 6% from 2019 to 2025, and its localised irrigation area is set to grow over 40% during this time. Asian demand of CN, tMAP, MKP, and NOP is growing, and we expect Chinese exports to fulfil a significant proportion of this demand.
Latin America has a more diversified supply mix
Approximately 38% of Latin America’s 2019 CN+tMAP+MKP+NOP imports were from China. CN and tMAP are the dominant products, while SQM in Chile, the largest global NOP producer, supplies much of that product to the region. MKP remains a niche product.
Mexico and Brazil are unsurprisingly the key Latin American demand markets. Mexico has become a key producer of fruit and vegetables for export to the US market. Higher value crops such as avocadoes have incentivised farmers to invest in localised irrigation. Although Brazil has the largest water reserves in the world, sustainability and improved utilisation of water resources has underpinned the growth of localised irrigation.
The Latin American market provides significant market opportunities. However, Chinese exports will face intense competition into the market from established players such as Haifa, SQM and Yara, while also vying against newer entrants such as OCP, EuroChem, and PhosAgro.
China’s excess capacity and price discounts will support its exports
Demand is set to continue expanding in China’s key export markets over the medium term and outpace ex-China capacity growth. In contrast, investment in Chinese production capacity is rising and domestic supply is set to outpace demand growth. Shanxi Dongjin, YTH, New Yangfeng, Lomon, SinoChem, and Bengbu are among Chinese companies planning to raise capacity. China’s dominant capacity position is set to persist and will influence investment decisions at existing and potential suppliers elsewhere. Export availability will remain high due to excess capacity. This will keep pressure on other global WSF exporters.
Chinese price discounts have helped producers penetrate markets over the last decade. Chinese CN, tMAP, MKP, and NOP discounts ranged between 9% and 25% compared to other global benchmarks in 2019. These price discounts will likely remain for at least some time, pressuring prices globally.
CRU’s expert analysis of the water-soluble market is available now
Chinese CN+tMAP+MKP+NOP exports will continue to be supported by growing WSF demand in Asia and Latin America. Despite strong global demand prospects, Chinese price discounts will persist as capacity expands. Rival exporters will maintain a significant presence and compete for market share with Chinese product. The CRU Water-Soluble Fertilizer Market Outlook examines the CN, tMAP, MKP, NOP markets in detail and includes data on capacities, demand, production, exports, imports, and prices by country over the 2010 to 2025 period. For further information about the report, please contact CRU via the button below.
