CCM: Analysis on risks in China’s glyphosate industry in 2016 (II)

   9. The risk of market competition

  
The trend that the global division of labor, the front-end intermediate and the technical production in the pesticide industrial chain are gradually transferred to China, India and other countries are irreversible. Chinese pesticide pioneers have accessed to this layout and even have led some of the trends. Viewing from the upstream, China has been the largest pesticide producer in the world, able to supply adequate pesticide products.

  As to the downstream products, the profitable pesticide sales in the global market will continue to attract numerous manufacturers at home and abroad. More large-scaled and formidable enterprises will attend the competition and especially some powerful pesticide producers will also further their efforts in developing technologies and expanding the market. All these will intensify the competition in the glyphosate industry.

  
CCM's analysis: Now there are roughly 30 or 40 active manufacturers for glyphosate technical in China and those for glyphosate formulations are even more than one hundred as estimated. Although more and more market shares are taken up by big enterprises, the competition among big glyphosate enterprises is still fierce. There is no doubt that the competition in China's glyphosate industry in 2016 are still intensified.

  
10. The risk of the impact from competing products

  
In China, it is glufosinate-ammonium and paraquat that are the major competitors against glyphosate. If competing products witness breakthroughs in their market promotion and sales in 2016, farmers will change to use those pesticides instead of glyphosate, which as a result badly affects the glyphosate industry.

  
CCM's analysis: China is going to ban paraquat AS since 1 July, 2016. Now paraquat is defined as a highly toxic product in China. Together with all the obstacles in registering non-AS paraquats, it is hard for paraquat to exert any big impact on glyphosate in 2016.

  However, glufosinate-ammonium might be the one striking the glyphosate market. Since 2015, many glufosinate-ammonium enterprises have vigorously popularized their products. For example, Sichuan Lier CropScience Co., Ltd., Jiangsu Sevencontinent Green Chemical Co., Ltd. and Heibei Veyong Bio-chemical Co., Ltd. keep high profile in publicizing their glufosinate-ammonium products.

  It can be predicted that there will be more enterprises to promote glufosinate-ammonium in this year. Now there are more than 10 glufosinate-ammonium brands in Chinese market and there are more than 150 kind of glufosinate-ammonium products registered and the registration number tends to keep growing.

  If glufosinate-ammonium achieves development by leaps and bounds in its market popularization and sales in 2016, farmers will change their way to use pesticides and turn to use the competing products, and that will be bad for the glyphosate industry.

  

11. The risk of the price fluctuation of major raw materials

  
Glyphosate are of rich raw materials, including yellow phosphorus, salt, methyl alcohol, phosphorus trichloride, chloroacetic acid, glycine, diethanol amine, iminodiacetonitrile and PMIDA, so the price fluctuation of these raw materials will affect glyphosate enterprises' performance. If the prices of raw materials are on the rise, the cost of China's glyphosate enterprises on production will rise and perhaps the gross profits from the sales of these companies will be lowered as well.

  
CCM's analysis: The prices of most raw materials for glyphosate just slightly fluctuate, but it is hard to say that they can stay stable in the coming few months. Generally speaking, the rising prices of raw materials will lead the production cost of glyphosate enterprises to go up and probably will bring down the grass profits from the sales of these companies.

  
12. The risk of safety production

  
Glyphosate enterprises are chemical enterprises. The raw materials they use and the products they produce are hazardous chemicals. Some inherent characteristics can be seen in chemical enterprises, such as the high-temperature and high-pressure processing procedure, incessant operation and part of flammable, and explosive raw materials and products.

  Therefore, there are a certain safety risks lurking in the production links and the transportation process of glyphosate enterprises. If some accidents happen in the production in the future, the normal operation and profitability of the glyphosate enterprise involved will be adversely affected.

  
CCM's analysis: Chinese glyphosate enterprises are always prudent on the safety production and they often stress the investment on the safety management. For instance, they not only will enhance the maintenance of devices and safety facilities, but also will strengthen the field management and safety education and training for employees.

  At present, Chinese glyphosate enterprises generally perfect all items involved in the safety management system and they basically can control and prevent the accidents.

  
13. The risk of falling price of inventory

  
Now the price of China's glyphosate still lingering over low level. In Q1 2016, the ex-works price of glyphosate technical in China averaged USD2,805/t (RMB18,333/t), the lowest one in these five years (2012-2016). In 2015, many glyphosate enterprises were badly affected due to the falling price of the inventory.

  For example, Anhui Guangxin Agrochemical Co., Ltd. (Anhui Guangxin) said that the loss from asset devaluation of the company in 2015 reached USD7.74 million (RMB47.97 million) and that in 2014 was USD2.16 million (RMB13.95 million). Anhui Guangxin disclosed that the loss from asset devaluation in 2015 was much more than that in 2014 and it was the declining price of glyphosate products in 2015 and the withdrawal of large provision for obsolete stock at the end of 2015 that should be responsible for the substantial loss.

  At the end of 2015, Anhui Guangxin' depreciation reserves for the raw materials for glyphosate were USD743,207 (RMB4.8 million) and that for glyphosate technical were up to USD6.58 million (RMB42.50 million).

  
CCM's analysis: It is unlikely for the price of glyphosate to see a substantial growth in 2016. Based on the prudent concept, it is predicted that there will be many glyphosate companies withdrawing the provision for obsolete stock regularly or irregularly in 2016. So, if the market price of glyphosate in 2016 keeps going down, the profitability of China's glyphosate enterprises will be greatly affected.

  
14. The risk of encountering bad debts in receivable accounts

  
Glyphosate enterprises will deliver the goods first and get paid second when they are competing for customers. Although most of them will strictly examine the credit status of their customers before making a deal and even will get the export credit insurance from China Export & Credit Insurance Corporation for the export businesses, if glyphosate enterprises cannot effictively manage the receivable accounts, they will still face the risk of encountering bad debts.

  
CCM's analysis: In general, glyphosate enterprises own perfect internal controlling system for the receivable accounts and they can strengthen the management in all links. It is very unlikely to encounter bad debts if their customers have good credit and strength. But if the glyphosate industry still remains depressed in year 2016, the risk of encountering bad debts cannot be neglected.

  
15. The risk of big fluctuation on enterprises' performance

  
The market price of glyphosate varies in different years. Thus enterprises' performance will fluctuate as well. What's more, the sales and gross profit margin of glyphosate also have uncertainties in each year. In conclusion, glyphosate enterprises may suffer large fluctuations in performance in year 2016.

  
CCM's analysis: Nantong Jiangshan Agrochemical & Chemical Co., Ltd. (Nantong Jiangshan) is an example that encountered great fluctuation in performance. In 2015, Nantong Jiangshan achieved revenue, gross profit and gross profit margin from glyphosate business of USD205.76 million (RMB1.33 billion), -USD1.86 million (-RMB12.04 million) and 0.91%.

   While in 2014, figures were USD268.12 million (RMB1.73 billion), USD54.62 million (RMB353 million) and 20.37% respectively. According to the current price of glyphosate, there will be more glyphosate enterprises suffering from gross loss in glyphosate business in year 2016.

16. The risk of glyphosate-resistant weeds

  
At present, Amaranthus palmeri, Amaranthus rudis, Echinochloa colona, Sourgrass, Eleusine indica (L.) Gaertn., Canadian fleabane, Conyza bonariensis (L.) Cronq., bitterweed, Ambrosia trifida, Lolium rigidum, Lolium multiflorum, Plantago lanceolata, Euphorbia cyathophora, Sorghum halepense, and Urochloa panicoides are major glyphosate-resistant weeds in the world.

  Branched Horsetail, clubhead cutgrass, field bindweed, Cirsium setosum, Canadian fleabane, Oplismenus compositus, and Youngia japonica are major glyphosate-resistant weeds in China. Their resistance levels are different in each regions. Now, the characters of China's glyphosate-resistant weeds are based on regions.

  For example, the same kind of weed will show different level of resistance in different regions, thus different dosage of herbicide should be applied to the same weed in different regions. In addition, as glyphosate is used alone for a long time, the resistance of weeds is rising.

  What's worse, these kinds of weeds like Alhagi sparsifolia Shap., reed in Northeast China, compositae weeds near the Liaodong Bay and Youngia japonica in Southwest China gradually become dominant species. If these weeds growing fast in major planting areas of crops, farmers have to use other herbicides to replace glyphosate.

  
CCM's analysis: In regard to the current situation, China does not release the specific growing areas of glyphosate-resistant weeds. Therefore, it is hard to evaluate the risk based on data. Glyphosate has been used in China for near 30 years, and the varieties of glyphosate-resistant weeds are rising, which mark that the harm of glyphosate-resistant weeds is strengthening. This is bound to pose negative impact on the development of China's glyphosate industry.

  This article comes from Glyphosate China Monthly Report 1604,CCM

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  Tag: glyphosate