The Chinese Finance Ministry is officially raising its export duties on all fertilizers by 100 percent, effective April 20. The higher rate will stay in place until the end of September 2008.
The move came as smaller steps to stem the flow of urea from the country to the offshore market failed. Urea exports were up 250 percent during the first two months of the year compared to the same period last year. MAP and DAP exports were up 280 and 130 percent during the same period.
The new tax regime allows cargoes already in bonded warehouses with all documentation completed to be exported under old export duties, but only if a vessel has been nominated.
Estimates of how many tons of urea are ready for shipment range from 100,000 mt to 1 million mt.
Below is the list from the ministry on the products affected by the decision.
Chinese Fertilizer Export Tariffs, Effective April 20, 2008
| Product | Original Tax Rate | Special Tax Rate | Revised Tax Rate |
| Phosphate Acid | 0 | 100 | 100 |
| Ammonia | 0 | 100 | 100 |
| Ammonium Chloride | 0 | 100 | 100 |
| Urea | 35 | 100 | 135 |
| AS | 0 | 100 | 100 |
| Ammonium Nitrate | 0 | 100 | 100 |
| Sodium Nitrate | 0 | 100 | 100 |
| Calcium Cyanamide | 0 | 100 | 100 |
| Potassium Nitrate | 30 | 100 | 130 |
| MOP | 30 | 100 | 130 |
| SOP | 30 | 100 | 130 |
| NPK | 35 | 100 | 135 |
| DAP | 35 | 100 | 135 |
| MAP | 35 | 100 | 135 |
| NP | 35 | 100 | 135 |
| PK | 35 | 100 | 135 |
| Other Fertilizers | 0 | 100 | 100 |
Source: Green Markets
One Asian trader added that TSP would be taxed at 130 percent.
The original tax rates reflect the efforts of the Chinese government to restrict the outflow of fertilizers during the domestic high application season. The urea and phosphate taxes were increased from 30 percent to 35 percent to the current level since January 1.
Beijing Orient Agribusiness Consultant, Ltd estimates the new tax will increase competition among urea producers in China. “Large enterprises can still maintain a good profit margin,” the firm told its customers. “But small companies may have a hard time. Large companies’ annexation of small ones is surmised to speed up.”
Part of the problem in the urea sector, say Asian sources, is a growing shortage of coal.
While China is the world’s largest coal producer and user, pockets of shortages occur as the government moves to close unsafe and unprofitable mines. The closures result in shortages of input material for urea producers.
Demand for urea remains strong, and the application season is just beginning.
The Chinese government has always been deferential to the needs of the farmers. One trader once commented that the last thing Beijing needs is 900 million angry farmers.
A European observer noted that with the Olympics coming and the negative press China is already receiving over the Tibet uprisings, Beijing was anxious to keep a large portion of its population happy.
Phosphate exports to China from the United States have steadily declined as the country built up its DAP/MAP/TSP production capacity. The U.S. Trade Representative Office has repeatedly complained of Beijing’s use of the tax code to protect or promote domestic industries. Rebates on the VAT imposed on all material were issued to domestic producers and not importers.
In 2002, the value of U.S. phosphate exports to China was $676 million. Last year that amount fell to $97 million.
“This 135 percent export tariff will lead almost certainly to even higher prices than the record ones of today,” said industry veteran Dr. John Douglas of Douglas & Associates. “This in turn will tend to impel the Chinese producers and also the government to remove this restriction on exports in order to give more profits to the producers and more foreign exchange balances for the central government. Politicians are the same everywhere. They all want control over more money!”
Another source noted that with higher tariffs only in place for four-to-five months, that actual exports from China may be about the same as last year. However, the problem is that major buyers have to shift to Plan B during the middle of the year.
Another noted that the news could serve to prod along additional nitrogen plants around the world.