At the same time the export duties are being increased from China, Beijing announced it would remove all controls from fertilizer prices.
Beginning Feb. 1 the price of all domestic and imported fertilizers will be decided by market forces, according to the National Development and Reform Commission.
In the past the producers had to petition the government to increase prices. The government was always reluctant to approve the price hikes out of fear of antagonizing the country’s 900 million farmers.
The price of urea and DAP had to be raised to cover the costs of the inputs, which were slowly being deregulated. Eventually the cost of producing the fertilizers forced the government to either establish more subsidies for the producers or find other ways to help the farmers.
In recent years the central government has eschewed more subsidies to inefficient factories. In some cases local governments picked up the tab to keep the older urea plants operating rather than face massive unemployment if the plants closed.
Phosphate and urea producers were being hit hard by the increase in domestic supply – partly due to duties that discouraged exports – and increased input costs. The latest government action is seen by some Asian traders as a move to help the manufacturers without providing direct subsidies to maintain production.
Industry observers in China expect to see local prices rebound from their current slump.
Media reports also state that some of the inputs to the plants will be provided at “preferential rates.” In the past this has been a euphemism for subsidies.
One trader noted that if natural gas is being supplied from the national company at below market levels, by any other name that is a government subsidy.
The decision to allow fertilizers to move by market demand will affect farmers, who are already feeling the credit crunch faced by their counterparts around the globe. The saving move for the farmers is that the imposition of higher export duties will keep the producers from sending their products offshore once the international markets pick up.