In 2021, total fertilizer consumption is forecasted to recover and domestic fertilizer prices are expected to slightly increase in line with world prices, but margins may decline.
The leading industry group enjoys "sweet fruit"
Facing the negative impact of weather on Vietnam's agriculture, the country's fertilizer consumption in 2020 is estimated at 9.73 million tons, down 5.9% compared to 2019. In which, consumption of NPK, Urea and DAP decreased sharply, down 200 thousand tons (-6% yoy), 180 thousand tons (-8% yoy) and 100 thousand tons (-10% yoy), respectively, and demand decreased mainly in the Central and East regions. Southern.
Despite facing two waves of Covid-19 outbreaks on a large scale, with effective measures to prevent epidemics from the Government, no domestic fertilizer factories have to stop operating. Domestic fertilizer production increased significantly, domestic supply was plentiful. Fertilizer exports and imports also increased despite global supply chain disruptions.
On the contrary, the decrease in domestic demand due to the negative impact from extreme weather events makes the selling price of fertilizers in 2020 under great pressure from oversupply in the domestic market.
The positive point comes from the improved industry margins benefiting from the drop in raw material prices. The group of fertilizer enterprises using natural gas input (DPM, DCM) will greatly benefit from the drop in world fuel oil prices in 2020.
The group of enterprises producing NPK from single fertilizers will benefit indirectly through a decrease in prices of single-input fertilizers in 2020, but face fierce competition and declining demand.
Since 2015, the transfer of fertilizers to the non-VAT taxable items has caused the profit margin of the fertilizer industry to decrease because the input VAT is charged to the cost of production. The unaltered VAT policy on fertilizers in 2020 also reduces the competitive advantage of domestic firms over imported products over the past few years.
Fertilizer demand will increase in 2021
According to FPTS Securities, with favorable weather forecast, high agricultural product prices, expected recovery of agricultural production, Vietnam's fertilizer industry outlook is expected to be positive in 2021 thanks to total demand. Fertilizer consumption in 2021 is forecast to rebound.
According to forecasts, this year's La Nina phenomenon can last until March 2021. La Nina lasts during the dry season, causing more rain, and is expected to reduce the impact of drought in the Central, Central Highlands and saline intrusion in the South.
From May 4-5 / 2021, the neutral state is expected to be maintained again, expected to bring favorable weather to most agricultural areas across the country, boosting the need for fertilization for plants. planting and improving fertilizer consumption for the 2020/21 crop.
According to AgroMonitor, total fertilizer demand in 2021 is expected to reach ~ 10.3 million tons, up 5.5% compared to 2020. Consumption of most fertilizers will increase, especially DAP (+ 12% yoy), phosphate fertilizer (+ 8.7% yoy) and NPK fertilizer (+ 4.6% yoy). Consumption of Urea fertilizer is forecasted to be stable (+ 0.5% yoy), Potassium fertilizer (+ 2.4% yoy) and other fertilizers (+ 10.3% yoy).
In 2021, it is expected that the total fertilizer demand in the Mekong Delta (the largest fertilizer consuming region in the country) will recover ~ 4 - 6% over the same period, mainly increasing consumption of DAP, NPK and other other types such as phosphate fertilizer, organic fertilizer….
In addition, domestic fertilizer prices in 2021 are expected to increase slightly in line with world prices. According to the World Bank, world fertilizer prices such as Urea, DAP, and K fertilizer are forecast to increase slightly in 2021.
On the other hand, FPTS believes that 2021's industry margin is expected to decline due to the impact of the Urea segment. The corresponding increase in input gas price of Urea segment due to being anchored to world FO oil price could make Urea's profit margin drop. Price of brent crude oil and FO oil in 2021 is expected to increase to USD 52.7 / barrel (+ 24.6% yoy) and USD 305 / ton (+ 22.6% yoy).
NPK profit margin is expected to drop slightly more due to the indirect impact from raw material fertilizer price. The price of single-input fertilizers is forecast to increase slightly in 2021, while the domestic NPK fertilizer price is quite stable. The DAP segment is expected to have a slight increase in profit margins because the 2021 DAP fertilizer price is forecasted to increase and the domestic apatite raw material is self-control and has a relatively stable price in recent years.
