Fertilizer firms advised to cut costs, save energy amid less favorable conditions

Vietnam’s fertilizer export surpassed $1 billion in 2022, with more than 1.7 million tons, according to official data. Why could the industry make such a good outcome, and what are your forecasts for 2023?

In 2022, although global uncertainties affected production and business, the fertilizer industry still achieved many positive results.

Fertilizer factories in Vietnam supplied about 6.5-7 million tons of chemical fertilizers, including phosphate fertilizers, urea and NPK fertilizers. Meanwhile, for sulfate ammonium (SA) and potassium fertilizers, the country depended on imports.

State-run chemical group Vinachem estimated its 2022 pre-tax profit at more than VND6,000 billion ($256 million), with VND2,645 billion contributed by four subsidiaries Ha Bac Fertilizer, Ninh Binh Fertilizer, DAP Hai Phong, and DAP Lao Cai.

Ca Mau Petroleum Fertilizer Joint Stock Company (DCM) posted a record output of 911,000 tons, and an after-tax profit of VND3,713 billion ($158.44 million).

Meanwhile, the respective figures of the PetroVietnam Fertilizer and Chemicals Corporation (DPM) were 912,000 tons and VND4,884 billion ($208.4 million). Its production far exceeded the design capacity of 740,000 tons.

In 2021, Vietnam exported 1.35 million tons of fertilizers of all kinds, worth $559 million, up 16.4% and 64% year-on-year, respectively. In 2022, due to the global fertilizer shortages, Vietnam's export volume far exceeded the target.

Last year, the country earned nearly $1.1 billion from shipping about 1.7 million tons of fertilizers abroad, up nearly 100% and 34% respectively from 2021. This marked the highest export achievement of the local fertilizer industry so far.

There were many reasons for these attainments, notably fluctuations in world supply and demand and skyrocketing fertilizer prices. This was the third price hike in the past 50 years.

According to experts, fertilizer prices soared firstly due to an increase in energy prices and other variable costs. Natural gas is the main raw material for most nitrogen fertilizers, accounting for 70-90% of production costs. The sudden surge in natural gas prices led to a rise in fertilizer prices, forcing many factories to close.

Second, the Russia-Ukraine conflict exacerbated the global supply situation. In response to economic sanctions, Russia halted the export of hundreds of commodities, including fertilizers, and expanded the farming area.

In addition, sanctions imposed on Belarus affected the supply of potassium since it contributes about 20% of total global potassium. Russia and Belarus produce about 40% of total potassium in the world. Meanwhile, Russia alone provides 23% of ammonium nitrate.

Export restrictions by China and Russia, which account for a large amount of fertilizer exports, also put pressure on prices.

Third, logistics costs, especially container shipping, increased rapidly.

Fertilizer production and import-export in 2023 will see some changes as China reopens its economy, restores fertilizer production and exports. However, the price and supply of natural gas will still play an important role in the recovery of fertilizer production in 2023.

When China reopens its economy, it can restore production output and lift export restrictions. This may cause fertilizer prices to continue to cool down in 2023 and affect the exports of Vietnamese enterprises. What is your argument?

China is a powerhouse in fertilizer production. According to the 2019 data of International Fertilizer Association (IFA), China ranked first in the world in nitrogen fertilizer production with more than 30 million tons per year, accounting for 24.6% of global production. It was followed by the U.S. and India.

China also topped the world in phosphorus fertilizer production with about 20 million tons per year, making up 37.7% of the global total. The U.S. came second, accounting for 9.9%, and India, third, 9.8%.

Regarding potassium fertilizer production, Canada took the lead in Muriate of Potash (MOP) production, accounting for 31.9% of the global figure with nearly 15 million tons per annum. It was followed by Belarus, Russia and China.

In 2020, Russia exported $7.6 billion worth of fertilizers, making it the largest fertilizer exporter in the world. China ranked second.

According to United Nations Comtrade, Russia earned $12.49 billion from fertilizer exports in 2021. It was followed by China with $11.47 billion, and Canada $6.61 billion.

Currently, data on China's fertilizer exports in 2022 is not yet avaiable. However, China’s resumption of fertilizer production and exports will certainly have an impact on fertilizer supply and prices, but the level of its fertilizer production recovery and exports will depend on other factors like the Russia-Ukraine conflict, supply and price of natural gas - an important raw material for the production of nitrogenous fertilizers and diammonium phosphate (DAP).

China’s return to the market does not mean that Vietnamese enterprises will no longer have opportunities.

In fact, the Russia-Ukraine conflict has not cooled down yet and fertilizer plants in Europe remain closed because of high gas and fuel prices. Russia still faces difficulties in exporting fertilizers, and the export embargo on Belarus is yet to be lifted.

Therefore, Vietnamese enterprises can still retain old markets while seeking new ones.

Even if the political conflict ends, countries still need time to restore production, so at least in 2023, Vietnamese fertilizer exporters still have certain opportunities.

"Big players" in the fertilizer industry like DCM, DPM and Vinachem all enjoyed record revenues and profits in 2022. However, context elements might change this year. What should businesses do in response?

In 2023, a number of favorable factors for production and business may decrease, so the above enterprises and fertilizer producers in general need to reduce costs, use energy economically and efficiently, optimize production processes, keep old markets and find new ones.They should also continue to study production of high quality fertilizers.

At the same time, fertilizer businesses need to pay attention to sustainable development and green chemistry in production.

For sustainable development, the National Assembly needs to revise the Law No. 71/2014/QH13 dated November 26, 2014 on amendments to tax laws to turn fertilizer products from those not subject to VAT into taxable ones. Although this issue has been analyzed and evaluated by experts and relevant agencies over the past few years, the law has not been revised yet.

In addition, it is necessary to have a general assessment of the draft decree imposing a 5% export tax on some types of fertilizers.