1. The prosperity index of the fertilizer industry was 47.3 in 2008, falling to 33.8 in Q4, hitting the bottom of 29.4 in Q1 2009, and 30.7 is expected for the whole year of 2009 and a rally to 39 in 2010.

2. Factors Conducive to Development of the Fertilizer Industry (Opportunities):

• The Government raised comprehensive subsidy from 63.8 billion yuan in 2008 to 71.6 billion yuan in 2009for agricultural raw materials in order to support agricultural development;

• Fertilizer price fell significantly from same period last year, and the substantial growth of the ratio between grain and fertilizer is conducive to mobilize farmers to purchase more fertilizer;

• As the largest producer of coal in the world, China has abundant supply of coal and natural gas, and global surplus of sulphur provides affluent raw material for domestic fertilizer production.

3. Negative Factors to the Development of the Fertilizer Industry (Threats):

• The growth of grain production in 2008 was faster than previous estimate, and the slowing down of the growth of grain production in 2009 would result to slowing down of the growth of fertilizer demand;

• The growth of fertilizer production is faster than the growth of consumption, hence there is threat from climbing stock;

• Threat of insufficient raw material supply due to reduction of production of pyrite and phosphorus ore;
  Threat of resource waste and abandoning of outdated capacity due to surplus production capacity of fertilizer;

• Decline of growth of fertilizer sales revenue from same period last year;

• Falling of gross profit margin due to decline of fertilizer price and slowing down of growth of total profit.

4. Potash fertilizer among the fertilizers enjoys the best prosperity index, and as the domestic largest producer of potash fertilizer, Qinghai Salt Lake Potash Co., Ltd. witnesses around 70% of gross profit and enjoys a bright prospect.

BOABC Focal Viewpoints  1

I. Prosperity Index of Fertilizer Industry. 2

1. Prosperity Index of Fertilizer Industry: bottom hitting in Q1 of 2009, stabilization and rally expected in Q2 .    2

2. Research on Fertilizer Demand . 4

Drivers of Fertilizer Demand: acreage, ratio between grain and fertilizer, and fertilizer export  4

Grain Production Level: 5.4% growth of grain production in 2008, and production in 2009 is projected to be similar as in 2008  4

Ratio between Grain and Fertilizer: the rising of the ratio in Q1 of 2009 was conducive to mobilize farmers to buy more fertilizer   4

Fertilizer export: export in Q1 2009 fell sharply from Q1 2008 except for DAP  5

3. Research on Fertilizer Supply  5

Drivers of fertilizer supply: abundance of raw material supply, stock and import volume 6

Abundant supply of coal and natural gas, 5.7% growth and 7.5% growth respectively in Q1 2009    6

Sulphur Production: 2.4 million tons production in 2009 is expected, the rate of dependence on import to fall to 78%  6

Pyrite Production: 0.6% less production in Q1 2009 than Q1 2008, the falling rate slowed down  7

Phosphorus Ore Production: 2.9% growth in Q1 2009 than Q1 2008, a rally was seen  7

Ratio between stock and consumption: stock pressure still big . 8

Still surplus production capacity of nitrogen fertilizer, the ratio between stock and consumption in 2009 to rise to 30.7%. 8

Serious surplus of production capacity of phosphate fertilizer, the ratio between stock and consumption to rise to 23.6% in 2009   8

Still serious shortage of production capacity of potash fertilizer, the ratio between stock and consumption to fall to 11.1% in 2009 due to restraint of import. 9

Compound and mixed fertilizers, the ratio between stock and consumption to rise to 24.9% in 2009 9

Fertilizer Import: import in Q1 2009 fell noticeably from Q1 2008   9

4. Growth of Fertilizer Production . 10

Nitrogen Fertilizer Production: bottom hitting in Q4 2008, 9.4% growth in Q1 2009 than Q1 2008    10

Phosphate Fertilizer Production: bottom hitting in Q4 2008, 14.7% growth in Q1 2009 than Q1 2008 11

Potash Fertilizer: 11.7% growth in Q1 2009 than Q1 2008    11

Compound and mixed fertilizer production: minor growth in Q1 2009 over Q1 2008. 11

5. Sales Revenue and Growth of Domestic Scaled Fertilizer Producers   12

Sales Revenue: sales revenue in Q1 2009 was the same as in Q1 2008  12

Growth of sales revenue: drastic growth of potash fertilizer in 2008 and back to normal  12

6. Gross Profit Rate of Fertilizer: continual decline in Q1 2009  13

Fertilizer Price: bottom hitting in Q1 2009, and rally expected in Q2   13

7. Total Profit and Growth of Fertilizer   14

8. Prospect of Fertilizer Industry   14

Positive growth of fertilizer consumption volume in 2009 is expected   14

Affluent production capacity of both nitrogen fertilizer and phosphorus fertilizer, but potash fertilizer would depend on import for a long time   15

II. Fertilizer Industrial Chain   16

Analysis of input and output of fertilizer 16

Each ton of urea consumes 0.6 ton of liquid ammonia on average   17

Each ton of MAP consumes 1.4 tons of sulphuric acid, 1.8 tons of phosphorus ore and 0.14 ton of liquid ammonia on average    17

Each ton of DAP consumes 1.5 tons of sulphuric acid, 1.8 tons of phosphorus ore and 0.24 ton of liquid ammonia on average    18

Supply of synthetic ammonia raw material: abundant coal supply but fast price upsurge, preferential policy on natural gas not appropriately implemented 18

Supply of sulphuric acid raw material: surplus of sulphuric acid production and surplus around the globe 19

Phosphoric acid supply: production capacity still surplus in 2009  20

Potassium ore supply: scarcity of potassium ore, external dependence is as high as 60%-70%    21

Fertilizer processing: production cost of processing companies close to raw material supply is remarkably lower than those not in raw material producing areas 21

Fertilizer sales link: the operational skeleton shift towards diversification and multiple operational modes from the agricultural raw material supply-sales system 22

Crucial factors for success of a fertilizer company are ability in obtaining low-cost energy and minerals and ability in cost control    23

III. Analysis of Fertilizer Market Competition  23

194 billion yuan of sales revenue of scaled nitrogen fertilizer producers in 2008, of which urea accounted for around 57%  23

Urea consumption structure: over 83% of urea was consumed by farming   23

58.3 billion yuan of sales revenue of phosphorus fertilizer in 2008  24

14.7 billion yuan of sales revenue of potash fertilizer in 2008   24

165.9 billion yuan of sales revenue of compound and mixed fertilizer in 2008  26

IV. Import & Export of Fertilizer from 2006-2009    26

Status of fertilizer export: fertilizer export makes up less than 10% of production, export fell sharply in Q1 2009   26

73% decline of urea export in Q1 2009. 26

57% decline of concentrated superphoshpate export in Q1 2009  27

60% growth of DAP Export in Q1 2009 27

40% decline of MAP export in Q1 2009 28

98% decline of NPK export in Q1 2009 28

Status of fertilizer import: domestic demand shrank in Q1 2009, and fertilizer import on a downward trend           29

27% decline of potassium chloride import in Q1 2009 from Q1 2008   29

62% decline of potassium sulphate import in Q1 2009 from Q1 2008   30

Positive growth of DAP in Q1 2009 thanks to non import in Q1 2008  30

100% growth of NPK import in Q1 2009 than Q1 2008  . 31

V. Qinghai Salt Lake Potash Co., Ltd.: Domestic Leading Player in Potash Fertilizer MOP  32

Potash price kept at high level pursuant to scarcity    32

XINJIANG GUANNONG FRUITS AND ANTLERS CO., LTD.: benefited from State Investment Xinjiang Luobupo Potassium Salt Co., Ltd., and efficiency of potash fertilizer to be fully exploited in 2009 32

Relevant listed fertilizer companies  33

VI. Interpretation of Fertilizer Policy 35

The National Grain Development Plan (2008-2020) Ensures Stable Growth of Domestic Fertilizer Demand         35

Comprehensive subsidy of agricultural raw material shall link up with fertilizer price in 2009 35

Preferential Treatment of Fertilizer Raw Material and Energy Prices  36

Limited Impact from Relaxation of Fertilizer Price Control on Market  36

Slightly Lower Customs Tariffs on Fertilizer Export from July 1^st, 2009 . 36

Fertilizer Reserve Raised to 1,600 Tons during Off Season Further Released Company Pressure    37

Annex 1: List of Charts   38

Annex 2: Introduction to Fertilizer Products  40

Annex 3: Status of Pyrite Resource. 44

Annex 4: Status of Phosphorus Ore Resource    46

Annex 5: Status of Potassium Ore Resource  48

Annex 6: Equilibrium of Fertilizer Supply and Demand    50

Annex 7: List of Top 100 Domestic Fertilizer Producers   53

About BOABC           56

Related Reports:

China fertilizer manufacturing industry
Global Fertilizers & Agricultural Chemicals 
Global Fertilizers and Agricultural Chemicals Manufacturing 
Research Report on Chinese Chemical Fertilizer Industry 
Report on Analysis of Complex Fertilizer Demand in China 
China compound and mixed fertilizer manufacturing industry