CCM: Rising railway freight in phosphate fertilizer transportation

                                                                                                  Source: Baidu

   On 29 Jan., 2015, the National Department and Reform Commission published the Notice on Adjusting Railway Fare and Further Improving the Pricing Mechanism (the Notice) to adjust the prices of railway cargo transportation appropriately, rationalize the price level and improve the pricing mechanism at the same time. In accordance with the principles of maintaining a reasonable parity between rail and road freight, the Notice states an appropriate increase in the unified national rail freight clearly. The benchmark price is increased from US¢2.36 (RMB0.15) to US¢2.53 (RMB0.16), allowing a proper floating up within 10% as no limit on the fall. Therefore, railway transport enterprises can independently determine the specific price levels based on market supply and demand. The above acts have been implemented since 1 Feb., 2015, and the price floating policy will be implemented from 1 Aug., 2015.

  
The Notice highlighted to rationalize the price level of fertilizer and phosphate ore and cancel the discount on freight. Thereinto, the truckload of phosphate ore adjusted to execute the NO.2 tariff as the agricultural fertilizer adjusted to execute NO.4 tariff.

  
Railway tariff table for various of goods in 2015

  Note: Truckload freight per tonne = No.1 benchmark + No.2 benchmark x distance(km)
Source: National Development and Reform Commission

  
The adjustment of railway fare will cause a significant increase in the transportation cost of phosphate ore and phosphate fertilizer. The NO.1 benchmark price of phosphate price increased from USD1.48/t (RMB9.10/t) to USD2.66/t (RMB16.30/t) and NO.2 benchmark price increased from US¢1.30 (RMB0.08/t) to US¢1.60 (RMB0.10/t) per kilometer compared to the old price. For example, the railway distance between Chengdu City and Zhanjiang City is 2,030 Km, and the current transportation cost is USD35.07 (RMB215.24/t) calculating on the new standard with 25.50% up compared to the previous transportation cost which was USD27.95/t (RMB171.50/t) with the old standard. In addition, the adjustment of railway fare will increase a significant cost of sales to phosphate fertilizer enterprises without a doubt; furthermore, the increased cost will probably shift to the downstream consumer groups. In the case from Guiyang City to Harbin City, the station price of the 64% winter storage diammonium was around USD488.84/t (RMB3,000/t) this year, but it increased to USD500.90/t (RMB3,074/t) after the increased in transportation cost. To be noticed, the recent China fertilizer market still continues a downturn and the market might be hard to adopt the increasing price so that the profit margin of phosphate enterprises might be further compressed.

  
Transportation cost of phosphate fertilizer before and after railway fare adjustment

  Source: CCM

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