China attaches great importance to food security. The area under grain cultivation continues to grow, and the demand for phosphate fertilizer is expected to increase steadily.
The Zhitong Finance App learned that Guohai Securities released a research report saying that under the influence of factors such as slow capacity expansion and steady increase in demand, the bank expects the operating rate of phosphate ore from 2024 to 2026 to be 89.9%/86.5%/80.1%, respectively. The production capacity of phosphate ore put into production in 2025 is concentrated in the second half of the year. The tight supply and demand situation for phosphate ore may remain tight until the first half of 2025. Prices are expected to continue to fluctuate at a high level, maintaining the “recommended” rating for the phosphate ore industry. We recommend Yuntianhua (600096.SH), Xingfa Group (600141.SH), Chuanheng Co., Ltd. (002895.SZ), Chuanfa Dragon Python (002312.SZ), Xinyangfeng (000902.SZ), Yuntu Holdings (002539.SZ), etc.
Guohai Securities's views are as follows:
Supply side: China is the world's largest producer of phosphate ore and phosphorus chemicals. In 2022, China's phosphate ore production reached 105 million tons, accounting for 44% of the world, but China's phosphate reserves were only 3.69 billion tons, accounting for 5% of the world, and the storage ratio is 35, far below the global average of 309. According to the China Chemical Fertilizer Information website, compared with other phosphorus-producing countries, China has few rich and poor phosphate minerals. The average grade of phosphate ore is about 17%, far lower than Morocco (33%) and the United States (30%), and the ability to guarantee the sustainability of phosphate resources is not strong. The phosphate mining industry is a capital-intensive industry. Project construction, equipment investment, safety and environmental protection require a large amount of capital investment. Generally speaking, a newly built mine requires 3-5 years to carry out environmental construction before it can be put into operation, and it takes 1-2 years to complete the production capacity climb. According to the bank's incomplete statistics, domestic phosphate ore production capacity reached 35.5 million tons by the end of 2023, of which no additional production capacity was put into operation in 2024. The remaining production capacity is expected to be increased by 15.7 million tons in 2025. The remaining production capacity will be put into operation in 2026. The additional production capacity is mainly from Wengfu Group, Chuanheng Co., Ltd., Hubei Xiangyun, Xinyangfeng, and other supporting enterprises in the phosphorus chemical industry. The compound growth rate of production capacity in 2023-2025 is only 3.97%. The production capacity is expected to increase by 12.4 to 148 million tons.
Demand side: International food prices have fluctuated drastically in recent years due to a combination of factors such as frequent extreme weather, rising trade protectionism, and geopolitical turmoil. China attaches great importance to food security. The area under grain cultivation continues to grow, and the demand for phosphate fertilizer is expected to increase steadily. At present, China's export inspection policy will still be implemented for a long time. Phosphorus fertilizer production capacity is mainly guaranteed for domestic supply, and there is great uncertainty about exports. Benefiting from the rapid development of new energy vehicles, demand for lithium iron phosphate batteries is strong; currently, a large number of iron phosphate projects and supporting phosphoric acid purification projects are under construction. As these projects are put into operation one after another, it is expected that demand for phosphate ore will continue to grow in the field of new energy. According to the bank's forecast, the 2023-2026 phosphate ore demand CAGR is 4.02%.
Risk warning: Product price fluctuations, safety and environmental production risks, the commissioning progress of new construction projects falls short of expectations, downstream demand growth falls short of expectations, competition in the iron phosphate industry intensifies risks, and the focus on the company's profit forecast falls short of expectations.