Why are export tariffs for fertilizers increased again?

On February 15th the General Administration of Customs announced a new regulation readjusting the export tariff rates of partially chemical fertilizers. The export tariff rates of mono-ammonium phosphate (MAP) and di-ammonium phosphate (DAP) are increased to 35% and the export tariff rate of compound fertilizers is also increased to 35% effective February 15th, 2008 to September 30th, 2008. An export tariff rate of 20% will be implemented for both MAP, DAP and compound fertilizers from October 1st, 2008 to December 31st, 2008. In the preceding scheme for readjusting the export tariff rates of chemical fertilizers published at the end of 2007, the export of both MAP and DAP were to bear an export tariff rate of 20% in the first and fourth quarters and a rate of 30% in the second and third quarters. Why are the export tariff rates of MAP, DAP and compound fertilizers being increased again after less than two months'? Can the upward adjustment to the tariff reduce the overheated export of ammonium phosphate? Can it really help ease the prominent supply shortage of chemical fertilizers in the spring?

March is the month for preparing chemical fertilizers to be used in spring plowing. Neither the present delivery nor the inventory of ammonium phosphate is promising. Experts think that judging from the current situation of the chemical fertilizer market in China, there will surely be a shortage of phosphate fertilizers this year. "To guarantee a sufficient supply of phosphate fertilizers during the chemical fertilizer application period, the only remedy is that no ammonium phosphate is to be exported in the two months of January and February," said an executive from Anhui Liuguo Chemical Co., Ltd. (SH: 600470). "Nearly 1.5 million tons of ammonium phosphate resources can then be retained in the domestic market." Only in this way can the shortage be eased. As things stand, even without export control the export of ammonium phosphate would have a fundamental bottleneck. Due to the snowstorm in the southern region of China this January, many fertilizer manufacturers could not produce normally. Nevertheless, many fertilizer manufacturers are still trying to fulfill the export orders previously placed. The DAP price in the international market has also increased continuously, encouraging DAP manufacturers to export. The shortage of phosphate fertilizers, in particular concentrated phosphate compound fertilizers, in the domestic market this year has become a problem that cannot be ignored.

According to Wang Ying, senior engineer of China National Chemical Information Center, the new tariff policy for DAP and MAP is intended to ease the supply crisis of phosphate fertilizer resources in China. With the impact from the snowstorm in the south, many phosphate compound fertilizer producers have discontinued production or maintained only a low operating rate. The production of these units can be fully restored only after March. It is expected that the supply of phosphate compound fertilizers this spring will be 40% lower than the same period of 2007. The huge supply shortage and the drastic price rise of raw materials have led to a price rise of chemical fertilizers. To safeguard the stability of the chemical fertilizer market, China has twice issued policies concerning the export of chemical fertilizers in a very short period of time, hoping to reduce the export of chemical fertilizers and guarantee an adequate supply for the domestic market. Some experts, however, have different views. They think that the imposition of a 35% export tariff rate on compound fertilizers will have no appreciable effect on export control because the proportion of compound fertilizers among exported chemical fertilizers is relatively small. Besides, triple superphosphate, which is always heavily exported (60% of triple superphosphate produced in China is exported), has never been included in chemical fertilizer varieties bearing export tariffs. As a matter of fact, some MAP/DAP production units in China are designed on the basis of the triple superphosphate production process and therefore can be shifted to produce triple superphosphate with some minor modifications. To evade the high export tariff, some enterprises have already said that they will shift to produce triple superphosphate to reduce the export cost.

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Market analysts think that an export tariff rate of 20%, or even 30%, is enough to contain the export, let alone to retain more goods in the domestic market. At the present exchange rate of Renminbi to U.S. dollars, the export price of phosphate fertilizers can still leave a certain profit margin to exporters, although the margin is narrower than before. The increase of the export tariff rate for MAP/DAP can hardly contain the export, but it will likely stop the construction of new ammonium phosphate projects and therefore reduce or even avoid unneeded capacity expansion.

By Li Jianli, China National Chemical Information Center