In the environment where global fertilizer is in a weak balance between supply and demand, we need to test the validity of this policy. The seasonal pattern of seasonal changes in global fertilizer prices in 2011 may not be the same as in 2008-2010, and it is more likely to be ahead of schedule. The time to export tariffs during the peak season is an important factor. The original intention of the adjustment of China's fertilizer industry's export tariff policy still stems from the suppression of excessive domestic chemical fertilizer prices and a significant increase in farmers' production costs. 2008-2010 China's export tariff adjustment policy for fertilizers is mainly to adjust the tax rate to ensure domestic supply.
We believe that under the strict implementation of the export tax policy in the short term, there will be an excess supply of nitrogen and phosphate fertilizers in the country, and price increases will be hindered. Potash fertilizers will not be affected because they are mainly import-oriented. We expect that before the start of spring plowing and fertilization in February 2011, prices may drop slightly. This point has already been reflected in the market after the temporary tariff was introduced in December.
In the medium and long term, the trend of price increase of global agricultural products (19.14, 0.34, 1.81%) has not changed, and the demand for global rigid fertilizers has recovered. The supply and demand of global fertilizers will remain in a weak balance. We expect that shortening exports by 2 months is expected to affect 1 million tons of nitrogen fertilizer and phosphate fertilizer exports, which will further stimulate the supply of international fertilizers.
Fine-phosphorus chemical product tariffs have not been adjusted, continuing the previous tariff policy. We expect that the decline in domestic exports of phosphate fertilizers will lead to tight international phosphate fertilizers and phosphate products, domestic phosphate companies will benefit, and continue to recommend related phosphorous chemical companies Xingfa Group (20.71, -0.06, -0.29%), Chengxing shares (8.30, - 0.15, -1.78%).
We maintain our previous rating of “Overweight†for the agrochemical sector. In the three sub-sectors of nitrogen, phosphorus, and potassium, we recommend the order of phosphorus chemical industry, potash fertilizer, phosphate fertilizer, and nitrogen fertilizer. Focus on Xingfa Group, Yuntianhua (26.10, 0.45, 1.75%), Salt Lake Potash (65.10, -0.71, -1.08%), Guannong (28.31, 0.89, 3.25%) and Hubei Yihua (19.47, 0.17, 0.88%).
Risk Warning: Global weather changes will affect the supply of fertilizers, and the prices of agricultural products will fall sharply.
On December 15, the Customs Tariff Commission of the State Council reviewed and passed the 2011 Tariff Implementation Plan and submitted it to the State Council for approval. Implementation will begin on January 1, 2011. Among them, the export tariffs on chemical fertilizers in 2011 were adjusted, and the tariffs for nitrogen and phosphate fertilizers during the peak season of exports were reduced from 6 and 6.5 months this year to 4 months respectively. In the off-season, the tariff remained at 7%, which was in line with the previous forecast.