In June 2016, some domestic securities
dealers presented their views on reports that, if the markets of phosphorus
ore, glyphosate and phosphate fertilizer make turnarounds, Hubei Xingfa
Chemicals Group Co., Ltd. (Hubei Xingfa)'s performance will rebound. To refute
these opinions, Hubei Xingfa issued an announcement immediately. This becomes a
novelty to the Chinese A-share market.
Source: Baidu
Currently, the glyphosate market is in
fierce competition – price slumps continuously and profit margin narrows –
mainly due to oversupply, overstocks by clients, and concentrated operation of
new production lines. "In such depressed market, glyphosate price will not
rebound in the short run," disclosed industry insiders. Unexpectedly,
Hubei Xingfa invested a large sum in expanding the production capacity of
glyphosate.
In Jan. 2014, Hubei Xingfa acquired Hubei
Trisun Chemicals Co., Ltd. (Hubei Trisun) to expand glyphosate production line.
However, due to week market demand, Hubei Trisun's glyphosate price kept
falling, leading to poor performance these few years.
This dragged down Hubei
Xingfa's net profit by 84.37% YoY in 2015 and by 32.03% in Q1 2016. In 2014 and
2015, Hubei Trisun did not fulfill the commitments, at only 97.85% and 45%
respectively of the contracted net profit. The figure in H1 2016 was also very
low.
In Jan. 2013, Hubei Trisun constructed a
100,000 t/a glyphosate production line, which was under trial production, according
to Hubei Xingfa in Nov. 2015. "Now, the chemical project examination and
approval become stricter in China. If we do not expand production line, our
production facility will be eliminated when the entry criteria for the industry
gets higher," explained Hubei Xingfa.
Prior to this, Sichuan Hebang Biotechnology
Co., Ltd. and Sichuan Fuhua Tongda Agro-chemical Technology Co., Ltd. had
announced their capacity expansion plan for glyphosate. In the future, Hubei
Xingfa will bear increasing sales pressure in such fierce competition.
Glyphosate, as a sterilant herbicide, once
got popular in the market with price even up to USD15,038/t (RMB100,000/t).
However, the market has showed downtrend since 2009. Specifically,
-
2013-2014 – price up to USD6,767/t
(RMB45,000/t) thanks to the implementation of environmental inspection in China
and the improving overseas demand
-
Mid-Sept. 2014 – price started to decline
-
June 2016 – USD2,707/t (RMB18,000/t), down
60% over the highest in 2013
Although the market ushered in a
traditional peak season in Q1 2016, glyphosate price still maintained low.
Industry insiders believed that oversupply will get more serious, and market
competition will intensify because:
-
Domestic consumers show a resistance to
genetically modified crops to which glyphosate is mainly applied
-
Gradually released domestic capacity, weak
demand from grains (continuously falling prices) and poor export
So, how Hubei Xingfa will fare after
investment into glyphosate remains open to question.
This article comes from Glyphosate China Monthly Report 1607, CCM
About CCM:
CCM is the leading market intelligence provider for China’s
agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a
range of data and content solutions, from price and trade data to industry
newsletters and customized market research reports. Our clients include Monsanto,
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Tag: glyphosate