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Impact of environmental policies on China’s pesticides industry

By Patrick Schreiber, Marketing & PR Executive at Kcomber Inc - 11/06/2018

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Kcomber Inc’s Patrick Schreiber outlines the effect of China’s strict environmental protection measures on the pesticides industry, with a focus on price and exports, and opportunities for companies within and outside of China.
 
The Chinese government has increased environmental improvement measurements in recent years. To ensure implementation of these laws and regulations, national and local governments have formulated action plans and implementation guides. Constant inspections and forced production limitations are reducing supply from China’s manufacturers, especially in heavily-polluting industries.
 
It's a challenging time for Chinese pesticide traders and formulation manufacturers. They are caught in the middle of the pesticide value chain – under pressure from price increases and supply shortages, from pesticide technical manufacturers and raw materials producers. They also worry that price increases will make them less competitive.
 
Price increases
When China stepped up the implementation of environmental protection policies, many agrochemical companies experienced restricted production, and a large number were temporarily suspended or shut down. As a result, the country’s pesticide industry has seen a lower operating rate, declined pesticide output and tightened supply.  By the second half of 2017, as pesticide companies in China came under increased pressure, prices of technical materials had risen, pushing up the prices of most pesticides. Therefore, China’s exporters lost their cost advantages with which they had been long associated, at least to some extent.
 
To further explore the impact of China's environmental protection policies on pesticide exports, market intelligence provider CCM selected five mainstream pesticide products: 2,4-D, glyphosate, acetochlor, chlorpyrifos and azoxystrobin. The export volume of these products did not clearly suggest an impact on their exports, but an impact was seen in the Freight on Board (FOB) price. The FOB prices of all five products showed significant increases in the second half of 2017. This is thought to be due to the Chinese government strengthening environmental supervision during that period.
 
Economic indicators
In 2017, China’s pesticides industry achieved a revenue of $49.07 billion (US dollars), an increase of 8% year-on-year. The operating profit of the industry was $4.14 billion, an increase of 25%. Compared with the same period of 2016, the industry's economic indicators were greatly improved.
 
The incomes of synthetic and biological pesticides increased by around the same amount, but the former achieved better growth of profits due to overall increases in prices. Profits increased from 7% in 2016 to 8% in 2017, indicating that the industry had resumed growth. The industry saw significant improvement in the industry's accounts receivable, reduced debt levels and debt ratios.
 
According to most of the agrochemical companies that have announced 2017 performances so far, operating incomes increased substantially year-on-year. These companies saw relatively large growth in domestic operating incomes and profits, and weakened price advantages in the international market. Agrochemical companies faced different degrees of selling pressures in the foreign trade. Jiangsu Changqing, for example, achieved a year-on-year increase of 39% in the overall operating income of pesticide products which it exported directly itself, but the operating income of pesticide products exported by its agencies decreased. Some of the company's main products suffered a decrease in operating income in 2017.
 
In December 2017, export volume of China's pesticides was 136,300 tonnes, decreasing by 7.44% year on year, while the export value reached $736 million, increasing by 22.14%. At the same time, both pesticide technical and formulations witnessed dropping export volume year on year, yet they enjoyed climbing export values and export prices. Specifically, the export volume of plant growth regulators increased significantly, while that of insecticides and fungicides showed a relatively large decline; however, the export value of insecticides and fungicides grew the most.
 
Opportunities and challenges
Within China, there are opportunities for relatively strong pesticide companies. The pesticides market has seen growth in 2018, in terms of operating revenue as well as profits, amid environmental protection reforms, technology upgrades and effective cost control. Overall, operating revenue and operating profit of China's pesticide industry increased by 8% and 25% year on year respectively. Most major agrochemical producers in China have achieved increases in operating income and profit. However, small plants are finding the implementation of environmental protection policies more challenging. Therefore, Chinese pesticide traders and formulation manufacturers are expected to continue to show a ‘wait-and-see’ attitude, with cautious procurement, for the foreseeable future.
 
Events in China are also sending ripples around the world, as Chinese manufacturers have begun seeking raw materials from chemical companies elsewhere in Asia and the Middle East, as well as Europe and the US. The situation presents obvious opportunities for chemical producers in these regions, many of whom have already expanded capacity to fill the gaps in the market. 
 
Author:
Patrick Schreiber, Marketing & PR Executive at Kcomber Inc. 17th floor, Huihua Commercial & Trade Building, No. 80 Xianle Zhong Road Guangzhou 510070, P.R. China
T: +86-20-6293 8903
E: Patrick.schreiber@kcomber.com