Recent escalating geopolitical tensions in the Middle East have once again disrupted global fertiliser raw material and shipping markets. Heightened shipping risks in the Strait of Hormuz have impacted supplies of key raw materials such as energy and sulphur. Following a brief post-Spring Festival decline, domestic sulphur prices swiftly reversed course, returning to an upward trajectory and further elevating monoammonium phosphate production costs. Compounded by persistent demand gaps in the spring fertiliser stockpiling season, increased downstream enquiries, and rapidly improving market sentiment, some factories have suspended order acceptance while traders increasingly halt quotations. The MAP market has formally entered a new phase characterised by high costs, strong support, and heightened volatility.

Surging Raw Material Costs Deepen MAP Producers' Losses

MAP production relies heavily on sulphuric acid, primarily sourced from sulphur-based acid production and smelting by-products. China imports nearly 50% of its sulphur requirements, with over 56% originating from the Middle East. The escalating regional conflict has directly reduced sulphur shipments, extended transit times, and slowed domestic arrivals, causing port sulphur prices to reverse sharply after the Spring Festival.

Specifically, domestic port sulphur prices initially dropped by ¥90 per tonne post-holiday due to weak demand. However, they rebounded sharply following the conflict's impact. By 2nd March, quoted prices had risen to ¥4,260 per tonne – a 2.9% increase from pre-holiday levels and ¥2,200 higher than the ¥2,060 recorded during the same period last year, representing a year-on-year surge of approximately 107%. Driven by persistently elevated sulphur prices, sulphuric acid market demand has expanded while supply tightened, sustaining post-holiday price increases. Notably, the prevailing delivered price in Hubei rose to ¥1,180, an ¥80 increase (7.27%) from pre-holiday levels.

Amid persistently high costs, monoammonium phosphate producers remain in a loss-making situation. Calculated using Hubei's 55% powder ex-factory price of ¥3,850, theoretical profits from sulphuric acid production show a loss of ¥343 per tonne, while those from smelting acid production indicate a loss of ¥220 per tonne. Strong cost support has kept monoammonium phosphate market prices resilient.

Operating rates remain elevated, with adequate inventory levels

During the first week after the holiday, domestic MAP industry capacity utilisation rates rebounded, with some facilities increasing operational loads, leading to an overall rise in supply. This period's MAP output reached 245,600 tonnes, an increase of 12,000 tonnes (5.14%) compared to pre-holiday levels. Industry capacity utilisation stood at 62.15%, up 2.85 percentage points from before the holiday. The production increase was primarily concentrated in Hubei and southwestern regions, while the industry's total capacity remained stable at an annual base of 18.6 million tonnes.

From a production perspective, overall MAP supply is currently relatively ample, though performance varies among enterprises. Several large manufacturers in Hubei held substantial pre-holiday backlogs, with most orders extending into March, while new orders have steadily increased post-holiday. Following the outbreak of the Middle East geopolitical conflict on 28 February, market sentiment has markedly improved. Concurrently, order volumes at some local small and medium-sized factories have increased, leading to a reduction in inventories. Statistics indicate that the total backlog of orders for sampled enterprises remains above 420,000 tonnes, providing robust support for maintaining firm MAP prices.

Compound Fertiliser Operating Rates Rise, Demand Gap Persists

During the first post-holiday week, China's downstream compound fertiliser sector accelerated its resumption of operations, with capacity utilisation rebounding to 33.41% – an 8.91 percentage point increase from the previous week. In major production regions, facilities in Henan, Hebei, and Hubei gradually restarted from the sixth day of the Lunar New Year. Leading enterprises, aiming to secure spring ploughing supplies, began increasing production loads from the third day onwards, resulting in a noticeable rise in compound fertiliser supply during the week. Planned restarts of idled facilities in Jiangsu and Anhui regions are expected to further lift operating rates, with most enterprises reaching medium-to-high capacity utilisation around the Lantern Festival.

Spring ploughing raw material shortages persist. While large compound fertiliser producers hold stockpiles, some still require replenishment. Small-to-medium plants face insufficient inventory and exhibit strong procurement intent. Procurement demand from Northeast China will persist for some time. Following the Lantern Festival, as production rates further increase, compound fertiliser demand for raw materials such as monoammonium phosphate will continue to follow suit.

Costs and essential demand provide support; prices may remain firm or rise

Overall, the domestic monoammonium phosphate market will continue to be influenced by geopolitical factors, costs, and seasonal demand. In the short term, should tensions in the Middle East persist, premiums for sulphur and energy are unlikely to subside. This will maintain MAP's upward trajectory at elevated levels, with prices fluctuating in tandem with raw material costs and demand.

Domestic policies aimed at stabilising prices and ensuring supply will continue to exert a moderating influence, limiting sharp surges. However, the combined forces of rigid raw material costs, global supply contraction, and the essential demand for spring planting leave little room for price declines. Increased volatility is expected to become the prevailing theme.

As an integrated internet platform providing benchmark prices, on March 4, SunSirs' benchmark price for monoammonium phosphate was 3,916.67 RMB/ton, an increase of 0.69% compared to the beginning of the month (3,890.00 RMB /ton).

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