Industry Murmurs: China Exports Down, Market Oversupplied
20 September 2006 From time to time, sources in the industry close to Farm Chemicals International share their insights on the major trends in their industries. In Industry Murmurs a new, exclusive online feature on www.fc-international.com, we’ll share some of the thigs we’re hearing about world ag markets.
Chinese Exports Sag
According to an experienced executive at a major Chinese agrochemical company, volatility in the Chinese export market may take some time to settle down and get back on track. Companies are currently very concerned about the industry, which (unofficially) is down between 4% to 5% in 2006, following growth in the 6% to 10% range for the past three years.
Some of the issues mentioned by our source included:
- Price Wars. The average price for any export product has dropped 20% to 25% this year due largely to low-cost/low-margin sellers being forced to drop asking prices to compete for market share. FCI’s research notes that historically, this sort of activity in other markets has been a precursor to big industry changes including a downsizing of market players either through consolidation or company failures. While this may not be the case in China, it does pose a threat.
- Manufacturer Business Changes.Basic manufacturers of agrochemicals are revising their business methods, and many have stopped selling products to traders for prices as low as they have offered in the past. Also, more manufacturers are protecting themselves against bad credit by demanding pre-payment for products. However, many of these manufacturers currently lack the skill sets and resources to export. By forcing the trader out, many manufacturers are losing the expertise and overseas contacts that traders had supplied. This raises a question about the future of the Chinese export industry: Will the manufacturer/trader relationship be re-defined and re-established (which would likely require the strengthening and alignment of several traders into a smaller number of large-scale trading entities), or will the trader be absorbed by the manufacturer under manufacturer-run Export Divisions, as some of the larger chemical companies have already done?
- Local Crop Area Increase.Many Chinese companies are focusing on the domestic market as China has increases in soy, cotton, and specialty crop acreage, and forecasts predict a continued increase in Chinese production. With a local market capable of consuming agrochemical products without creating the additional costs of transportation, distribution, networking, and in some cases, registration, supplies of product for export markets have fallen.
Market Oversupply
Another FCI source, who works for a well-established agrochemical company in India, notes that India’s export markets also are suffering in 2006. Some of his insights:
- Oversupply In The Distribution Chain. Many Indian companies are seeing and hearing this. The domestic market in India is having a bad year as a result of flooding in some key areas, but Indian companies have had a difficult time siphonig product away from India because of general oversupply in the export market.
- Opportunities in Africa, Middle East.One are of promise noted by our source is in the developing markets of the Middle East and Africa, which have become more open and accessible to traders in the past few months. There are fewer "front men" and importers in these markets, and some foreign companies have begun to deal with local distributors directly in these markets. While these regions have potential, there currently is not a large amount of volume in these markets right now.
- Optimism In Specialties. Companies that offer specialty formulations and high-value products are acheiving better success at the moment. The price wars on the old generics (such as 2, 4-D, atrazine, and glyphosate) have driven down prices to a point that it is now difficult to sustain a business with these products without some sort of value-add.
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