1. Present status

With support from the government's agricultural aid policy, the compound phosphate fertilizer sector in China has developed rapidly since 2003. The annual growth of output averaged 10.4% between 2003 and 2007.

China now consumes more phosphate fertilizers than

any other country. The apparent consumption increased from 9.975 million tons in 2003 to 11.420 million tons in 2007, but the apparent consumption in 2007 was 5.9% lower than that of 2006. It was the first drop since 2000. China turned from a phosphate fertilizer importer into a net exporter in 2007. The export volume reached 2.543 million tons of phosphorus pentoxide (equivalent to 6.426 million tons of phosphate fertilizers in physical goods) that year, accounting for around 25% of the world's total trade volume in phosphate fertilizers. China exported 5.00 million tons of ammonium phosphate and triple superphosphate (AP/TSP) in 2007.

The main-business revenue in the phosphate fertilizer sector was RMB 164.377 billion in 2007, an increase of 33.56% over 2006 and 2. 6 times that of 2003. The total profit was RMB7.631 billion, an increase of 33.28% over 2006 and 5.2 times that of 2003.

Phosphate rock mining technology in China, the technology for the refined dressing and preparation of collophanite ore in particular, is up to international standards today. The technology can extend a mine's service life, increase the recovery and utilization rate of phosphorus resources and ensure sustainable development of compound phosphate fertilizers and the entire phosphorus chemical sector. The refined dressing and preparation of medium and low-grade collophanite ore in Guizhou, Yunnan and Hubei provinces is being commercialized. The 12.0 million t/a ore dressing project constructed by Wengfu Group in Saudi Arabia, the biggest worldwide, is a typical example showing that China's phosphate rock dressing technology is already world class. China Wuhuan Chemical Engineering Corp. won the contract for the first-phase 360 000 t/a phosphorus pentoxide/phosphoric acid project jointly financed by India and Tunisia, showing that the wet-process phosphoric acid technology and equipment in China is also world class.

In addition, technology of compound fertilizer production by tower granulation has also been used in a group of enterprises including Stanley Fertilizer Stock Co., Ltd. Some controlled-release/slow-release fertilizer technologies have been used by enterprises such as Shandong Kingenta Ecological Engineering Co., Ltd. The traditional-process DAP (diammonium phosphate) and slurry-process MAP (mono-ammonium phosphate) co-production technology jointly developed by Sichuan University and Wengfu Group has been used by large DAP enterprises. The 20 000 t/a anhydrous hydrofluoric acid unit constructed by Lantian Fluorine Chemical Co., Ltd. of Wengfu Group using byproduct silicofluoric acid from the phosphate fertilizer production was completed and put on stream April 29th, 2008, opening a new road for the extension of the phosphate fertilizer industrial chain to fluorine chemicals. The comprehensive utilization of resources and the construction of cyclic economic zones have also advanced a lot; Phosphogypsum is used to produce cement setting inhibitors, paper-faced gypsum boards, building blocks and briquettes. The utilization rate of phosphogypsum in Tongling Chemical Industry Group has reached 80%. The phosphate rock mining rate in Guizhou Kailin Group will be increased by 10% in the near future. The development of kiln-process phosphoric acid has made recent progress. On the basis of the 10 000 t/a 85% acid unit, Hubei Sanxin Phosphoric Acid Co., Ltd. (Hubei Sanxin) has constructed a 30 000 t/a tunnel kiln unit and also a matched dressing plant for tailings with a 18% content of phosphorus pentoxide. Tailings are used as raw materials for kiln-process phosphoric acid. A 120 000 t/a pentasodium phosphate unit is also under construction in Hubei Sanxin.

2. Challenges

In the first quarter this year China made three readjustments to the temporary tariff on the export of chemical fertilizers. The temporary export tariff rate for DAP, MAP and urea was increased to 35%. In the period from April 20th to September 30th a 100% special tariff was added, making the total temporary tariff for exports reach 135%. A series of macro control policies concerning chemical fertilizers had delivered a heavy blow to the compound phosphate fertilizer sector.

Major problems existing in the compound fertilizer sector today are as follows:

(1) Surplus capacity and blindness in development

The capacity of phosphate fertilizers in China has reached 20.0 million t/a today. It is expected that the output will be 14.5 million tons and the demand will be 12.0 million tons in 2008. The output will be much higher than the demand. Private enterprises with phosphate rock resources in Hubei province are still making blind investments in new phosphate fertilizer and compound phosphate fertilizer projects. The capacity surplus will therefore be further aggravated.

(2) Shortage of resources and drastic increase of production cost

As China lacks sulfur resources, 60% of the domestic demand has to be satisfied by imports. There is also a great shortage of potash fertilizers and imports volume account for 70% of consumption. Extreme troubles have therefore been brought to the production of compound phosphate fertilizers.

(3) Reduction of consumption and needs of improvement in macro control policy

Some experts think that a turning point has already appeared in the consumption of phosphate fertilizers in China. Due to the low price of grain and the high price of compound phosphate fertilizers, farmers lack enthusiasm for using compound phosphate fertilizers. It is expected that the consumption of phosphate fertilizers will decline further in 2008. China nearly stopped exporting phosphate fertilizer from late April to the end of September and most of that period is the slack season for the application of chemical fertilizers. Starting from early May, therefore, a group of enterprises such as Hubei Yangfeng Group have cut down their production by one third to two thirds and some enterprises discontinued production for overhaul. Many large enterprises in major phosphate rock provinces such as Yunnan, Guizhou, Sichuan and Hubei provinces reduced or suspended production from June due to slack sales. The entire phosphate fertilizer sector will sink in to a difficult position.

In the opinion of the author, the macro control policy of the government for export restriction can neither bring down the price of compound phosphate fertilizers, nor has significant effect on eliminating outdated capacity and promoting industrial upgrading. If the surplus capacity is not used to produce exports to compensate for the expenses paid in the import of high-price sulfur and potash, the production cost of compound phosphate fertilizers will increase further and there will be a dilemma of "the product price getting higher with the effort in export restriction." Yunnan, Guizhou, Sichuan and Hubei provinces seriously lack sulfur and are not allowed to export phosphate fertilizers. Production of basic compound phosphate fertilizers such as DAP and MAP in these regions has been hit badly. The application of fertilizers on the basis of measured land composition conducted by the Ministry of Agriculture of China excludes most large and medium compound fertilizer enterprises. Small enterprises with no guarantee of product quality can revive therefore. Due to the price rise of compound fertilizers and special fertilizers, markets are flooded with fake and poor-quality products made by enterprises with no production licenses. There will surely be a chaotic situation of "those who should be developed live hard and those who should be eliminated die hard."

The oil price in the international market is high, the pressure of economic inflation is getting heavier and there are more uncertain factors. The operating cost and the risk in enterprises are escalating. The phosphate fertilizer sector should therefore enhance the awareness of worries, get prepared for various risks and challenges, accelerate the transformation of economic development modes and promote the sound and sustainable development of the compound phosphate fertilizer industry.

Wu Xiyan, Director of China Phosphate Fertilizer Industry Association