Since 2021, the price of phosphate rock in China has continued to rise. Especially since 2022, downstream enterprises generally reflect the difficulty of phosphate rock procurement. We believe that the main reasons include:
1. Safe production means continue to close and eliminate phosphate rock production capacity: from 2016 to 2017, the state has greatly reduced China’s phosphate rock production capacity and output by means of environmental inspection, and China’s phosphate rock has entered a balance between supply and demand. The newly revised safe production law since 2021 emphasizes the people first and life first. The emergency management department has forced some small and medium-sized production capacity that fails to meet the safety production standards to be further cleared by means of safety inspection, Further lead to the shortage of phosphate rock supply and demand.
2. The leading companies are reluctant to sell: from the second half of 2021, the main phosphate rock leading companies will no longer sell or significantly reduce the phosphate rock take out volume. At the same time, they will also purchase some medium and high-grade phosphate rock, resulting in less phosphate rock circulating in the market.
3. Accelerated dilution of phosphate rock in China: China has large reserves of phosphate rock resources, but the average grade is low. At present, the sales volume of phosphorus minerals in various countries is basically based on the physical quantity of phosphorus ore, but in fact, after years of development and even partial overexploitation, the high-grade ore resources are continuously consumed, and the overall grade of phosphorus ore has decreased significantly.
4. The demand for new energy will drive the new demand for phosphate rock in the medium and long term: assuming that the demand for lithium iron phosphate will reach 2.5 million tons in 2025, the corresponding consumption will be 10 ~ 12.5 million tons, which may drive more than 10% of the demand for phosphate rock in China. In the state of tight balance between supply and demand of phosphate rock, the supply of phosphate rock will become more tense in the medium and long term.
5. From the perspective of new production capacity in the future, even if the exploration right has been obtained, it may take more than 5 years to complete the process of exploration to mining, and it may take more than 2-4 years from obtaining the mining certificate to fully forming the production capacity.
In conclusion, we believe that phosphate rock, as a non renewable strategic resource, has entered an oligarchic competition pattern after continuous capacity reduction in the past few years. China’s phosphate rock price is expected to gradually integrate with international prices in the future, the resource attribute of phosphate rock is expected to be revalued, and the new demand for new energy in the medium and long term will also raise the price center of phosphate rock.
In terms of performance, we believe that phosphorus chemical enterprises currently earn four parts of money:
1. Enterprises with their own phosphate rock earn money from the price rise of phosphate rock: the price of phosphate rock has risen rapidly since the second half of 2021 and hit a new high all the way. Therefore, for enterprises with phosphate rock, the profit expansion of phosphate rock end is obvious. From the perspective of unit market capacity, Yunnan Yuntianhua Co.Ltd(600096) and Guizhou Chanhen Chemical Corporation(002895) benefit from higher price elasticity of phosphate rock and higher self-sufficiency rate.
2. The price of phosphate fertilizer in China basically does not make money. The profit from the price difference outside China depends on the export capacity of each country: after spring ploughing, China’s phosphate fertilizer export is expected to accelerate. Therefore, we believe that when calculating the price elasticity of chemical fertilizer, we should not simply use all production capacity, but consider the export capacity of each country. From this point, we are more optimistic that the head state-owned enterprises may have higher efficiency in passing the legal inspection in the second quarter, It is expected to earn the price difference at home and abroad. From the perspective of elasticity, it is optimistic about Yunnan Yuntianhua Co.Ltd(600096) , Hubei Yihua Chemical Industry Co.Ltd(000422) , Hubei Xingfa Chemicals Group Co.Ltd(600141) , CNOOC Petrochemicals (Hong Kong stocks), and Kunming Chuan Jin Nuo Chemical Co.Ltd(300505) , which benefits from the greater price elasticity of heavy calcium.
3. Other phosphates that do not need legal inspection can earn money from price increases in China and abroad: we are optimistic about calcium dihydrogen phosphate with good supply and demand pattern. China is mainly used for aquatic feed. In the second quarter, it has gradually entered the traditional peak season. The quotation of China and the international market has increased sharply, and the price difference has expanded significantly. We mainly recommend the leader of calcium dihydrogen phosphate Guizhou Chanhen Chemical Corporation(002895) . At present, the production capacity is 360000 tons, and the Chinese market share is close to 40%.
4. Earn money from the cost difference of sulfuric acid: in addition to phosphorus ore, sulfuric acid is also one of the important raw materials of phosphorus chemical industry. At present, the cost of sulfuric acid from sulfur and copper smelting is the highest, while there is still a certain price difference (considering the income of by-product iron red) compared with the above two paths for the production of sulfuric acid from purchased pyrite. Therefore, enterprises with pyrite acid production capacity have certain advantages in sulfuric acid cost, including Anhui Sierte Fertilizer Industry Ltd.Company(002538) (800000 tons of pyrite acid production capacity), Kunming Chuan Jin Nuo Chemical Co.Ltd(300505) (200000 tons), Guizhou Chanhen Chemical Corporation(002895) (300000 tons). At the same time, it is suggested to pay attention to Guangxi Yuegui Guangye Holdings Co.Ltd(000833) , which has pyrite resources and benefits from the greater price elasticity of pyrite and sulfuric acid.
Risk tip: the price of phosphate rock has fallen sharply, the price of grain has fallen, and the demand is lower than expected.
