Editor's note: On May 22, Liuguo Chemical (600470) hit the daily limit; on May 23, Chengxing Co., Ltd. (600078) hit the daily limit; on May 28, Batan Co., Ltd. (002170) hit the daily limit; on May 29, Xingfa Group (600141) hit the daily limit. What is puzzling is that in the phosphorus chemical product market, the prices of various varieties are sluggish. So, what is the reason for the rise of phosphorus chemical stocks? Analysts pointed out that the excitement of these stocks was driven by events. In the final analysis, in an era where the endowment of phosphate rock resources is prominent and the integration of mining companies is continuously promoted, the long-term price increase channel has been opened, and it is expected that the fierce competition for "mines" will continue.

Behind the collective agitation of phosphorus chemical stocks: the fierce competition for "mines" in the phosphorus chemical industry

At the end of May, phosphorus chemical stocks began to be agitated again.

On May 22, Liuguo Chemical hit the daily limit; on May 23, Chengxing shares hit the daily limit; on May 28, Batan shares hit the daily limit; on May 29, Xingfa Group hit the daily limit.

What is puzzling is that in the phosphorus chemical product market, the prices of various varieties are sluggish. So, what is the reason for the rise of phosphorus chemical stocks? Analysts pointed out that the excitement of these stocks was driven by events. In the final analysis, in an era where the endowment of phosphate rock resources is prominent and the integration of mining companies is continuously promoted, the long-term price increase channel has been opened, and it is expected that the fierce competition for "mining" will continue.

Overview of the phosphorus chemical industry

In the phosphorus chemical industry, 71% of phosphate rock is used to manufacture ammonium phosphate, general calcium, heavy calcium, etc., mainly by wet process; the rest is used to produce phosphoric acid, phosphates and phosphides. At present, phosphate fertilizer has long been a scale of tens of millions of tons, and fine phosphorus chemical industry is relatively small.

In the Shanghai and Shenzhen stock markets, Liuguo Chemical is the company with phosphate fertilizer as its main business, with a production capacity of 2 million tons/year. Last year, Hubei Yihua (000422) started construction of a 2.28 million tons/year diammonium phosphate project. After the project reaches full capacity, the company's diammonium phosphate production capacity will reach 1.26 million tons/year. Xingfa Group initially developed fine phosphorus chemicals with a complete industrial chain; in July 2010, it invested in a 600,000 tons/year ammonium phosphate project and entered the field of phosphate fertilizer. The head of the company's department revealed to the reporter of "Daily Economic News": "The project will be put into trial production in July this year."

Chengxing Co., Ltd. is the only listed company focusing on fine phosphorus chemical business, and its main products are yellow phosphorus, phosphoric acid, calcium hydrogen phosphate and pentasodium. Among them, phosphoric acid has the largest scale, with a production capacity of more than 700,000 tons/year, and toothpaste-grade calcium hydrogen phosphate has a market share of more than 80%. Chlor-alkali company Tianyuan Group (002386) also has fine phosphorus chemical business, including 30,000 tons/year of food-grade phosphoric acid, 80,000 tons/year of pentasodium, and 20,000 tons/year of hexaphosphate.

Yuntianhua (600096) is about to enter the phosphorus chemical industry. It has been suspended and is waiting for the injection of the group's phosphorus chemical assets. It is speculated that the injected assets will include phosphate fertilizers, fine phosphorus chemicals and even phosphate rock. Phosphorus-based flame retardants are the main business of Yak Technology (002409), which is the downstream of phosphorus chemicals and is reluctant to be classified into the phosphorus chemical industry.

All varieties continue to fall in price

This year's phosphorus chemical products have not performed well.

According to Zhuochuang Information data, in May 2011, the ex-factory price of 55% powdered monoammonium phosphate was 2,750 yuan/ton, and this year it has remained at 2,700 yuan/ton, a drop of 50 yuan per ton. 57% diammonium phosphate has also fallen by 50 yuan per ton. Last year, Anhui manufacturers quoted 3,100 yuan/ton, and this year it is 3,050 yuan/ton. The price of food-grade phosphoric acid was 5,100 yuan/ton last year, but now it is only 4,900 yuan/ton, and it has been falling all the way.

In terms of industrial-grade pentasodium, industrial-grade hexamethonium and phosphorus trichloride, data provided by China Phosphorus Chemical Industry Network show that the current arrival prices of the three products are 6,550 yuan/ton, 7,000 yuan/ton and 4,600 yuan/ton, respectively, compared with 6,850 yuan/ton, 7,400 yuan/ton and 4,800 yuan/ton at the beginning of the year, respectively; a decrease of 300 yuan, 400 yuan and 200 yuan per ton, a decrease of 4.4%, 5.4% and 4.2% respectively.

Xie Zhuhong said that China's pentasodium is mainly used for export, and the situation in the first four months of this year was not very good. As for yellow phosphorus, an executive of Chengxing Co., Ltd. told the reporter of Daily Economic News: "The price has been going down recently." Xie Zhuhong said: "This is the rule of the industry. Yellow phosphorus is a high-energy-consuming product. It takes 14,000 degrees of electricity to produce one ton. June to October every year is the flood season, and the power supply is relatively sufficient, and the price of yellow phosphorus will fall. Downstream manufacturers are very clear about this, so they will reduce the purchase volume from January to May and wait for the price to fall."

Data shows that from March to now, the price of 99.5% yellow phosphorus in Guizhou has fallen from 18,200 yuan/ton to 16,100 yuan/ton, and the price in Yunnan has even fallen below 16,000 yuan/ton.

What is more worrying is that the industry is still plagued by overcapacity. The industry's operating rates for small-scale varieties such as industrial-grade pentasodium, industrial-grade hexamethonium and phosphorus trichloride are only 30%, 30% and 35% respectively.

Phosphorus chemical stocks have risen sharply

However, contrary to the price trend of phosphorus chemical products, phosphorus chemical stocks in the capital market at the end of May were excited. The reason may be related to the event.

January to May and October to December each year are the peak seasons for China's ammonium phosphate consumption, while June to September is the off-season. In order to protect the interests of farmers, the Chinese government has formulated corresponding export tariff policies, that is, the peak season export tariff is 110%, and the off-season tax rate is 7% when the export price is not higher than the benchmark price. When it is higher than the benchmark price, the tax rate = (1.07-benchmark price/export price) ¡Á 100%. After entering May, as China's demand gradually subsided, ammonium phosphate companies began to concentrate on producing export orders, and traders actively purchased goods and gathered at the port waiting for export. In addition, in June 2010, Liuguo Chemical signed a contract with Sichuan University to jointly develop iron phosphate and lithium iron phosphate, and the contract expired on June 18, 2012. Analysts believe that the daily limit of Liuguo Chemical may be related to the above two events.

The surge in Xingfa Group is likely due to the listing of the major shareholder Yichang Xingfa for the transfer of 100% equity of Yichang Phosphate Chemical, and the company will enter the market to delist. The company staff once told the reporter of "Daily Economic News": "This listing is completely tailor-made." After the transaction is completed, Xingfa Group's phosphate rock reserves will increase from the current approximately 150 million tons to approximately 220 million tons.

After a week of suspension, Batian shares resumed trading on May 28 and announced that it had signed the "Investment Agreement for Polyphosphoric Acid and Other High-tech Phosphate Fertilizers and Supporting Phosphorus Chemical Projects" with the Weng'an County Government.

According to the agreement, the company plans to build polyphosphoric acid and other high-tech phosphate fertilizers and supporting phosphorus chemical projects in the provincial industrial park of Guizhou Province. The initial plan is 2.1 million tons/year, which will be built in three phases, with a construction scale of 700,000 tons/year in each phase, and will be completed in 5 to 7 years. The Weng'an County Government promised that after the investment in the Batan project is no less than 1.5 billion yuan and the county's new phosphate resources are fully explored and ready for listing, Batan will be allocated mining rights with an average grade (phosphorus pentoxide content) of more than 23% and reserves of more than 200 million tons.

Phosphate ore resources have been protected

In fact, it is not just at the end of May. In recent years, phosphorus chemical stocks have performed from time to time and have shown a linkage effect.

Analysts pointed out that the excitement of these stocks is driven by events, but in the final analysis, it is still phosphate rock; in an era when the nature of phosphate rock resources is highlighted and the integration of mining companies continues to advance, its price has been opened up for a long time. "After speculation, funds are chasing only phosphate rock resources; after comparison, listed companies are comparing phosphate rock reserves."

Zheng Fangbiao, an analyst at Industrial Securities (601377), pointed out that the world's phosphate rock is mainly distributed in Morocco, China, the United States, Russia and some countries in North Africa and the Middle East. The above countries and regions concentrate more than 80% of the world's production and economic reserves. China's phosphate rock is mainly distributed in Guizhou, Yunnan, Hubei and Sichuan, with a proven reserve of about 16.786 billion tons and recoverable reserves of only 2.111 billion tons, with the lowest average grade in the world.

At present, developed countries such as the United States have gradually restricted or even banned the export of phosphate rock. In recent years, China has also successively implemented an export quota management system, introduced policies such as "Access Conditions for Ammonium Phosphate Industry" and "Access Conditions for Yellow Phosphorus Industry", and protected phosphate rock resources by adjusting taxes and canceling electricity price discounts.

The provinces with large phosphate resources have also strengthened the development and utilization of phosphate resources. In July last year, Hubei Province issued the "Opinions on Further Strengthening the Management of the Development and Utilization of Phosphate Minerals and High-Phosphorus Iron Ore", pointing out that the province will further reduce the number of phosphate mining entities and mining rights, gradually reorganize and close phosphate mining enterprises with a production capacity of less than 150,000 tons/year, and further concentrate phosphate resources on advantageous enterprises and large-scale key phosphorus chemical enterprises. Strengthen the management of phosphate transportation and strictly restrict the export of phosphate ore. In addition, the province controls the construction of new high-concentration phosphate fertilizer projects such as ammonium phosphate, and prohibits the construction of new low-concentration phosphate fertilizer projects and projects that only produce yellow phosphorus. In principle, the price of phosphate mining rights transferred for a fee shall not be less than 10 yuan/ton (standard ore, grade 30%).

Under the protection of various policies and measures, the price of phosphate ore has been rising steadily in recent years. Taking Guizhou's 30% phosphate ore as an example, the tax-inclusive price of the car plate was only 300 yuan/ton in 2010, and it has now soared to 600 yuan/ton.

¡¤ Investment Strategy

Focus on the company's phosphate exploration

If integration is the trend of the phosphorus chemical industry, phosphate rock resources are the goal that phosphorus chemical companies are desperately pursuing. At present, the situation of phosphate rock resources controlled by several listed companies directly determines their investment value.

Chengxing Co., Ltd. was once one of the three phosphate resource integration entities identified by Yunnan Province. However, there has been no major action since 2006. The company's executives explained to the reporter of "Daily Economic News": "The integration in this area is still dominated by Yunnan Tianhua Group, and they are the big head."

The company currently has phosphate rock resources mainly concentrated in Huize, Mile and Zhanyi in Yunnan, with reserves of about 120 million tons, and reserves per share of about 0.18 tons. All the mined ore is for self-use. In recent years, the phosphate mining capacity has been stable at around hundreds of thousands of tons. For grade ratio considerations, a part of it needs to be purchased from outside, converted into yellow phosphorus on site, and then transported to Jiangyin, the headquarters, to produce phosphoric acid and phosphates.

Longguo Chemical, located in Anhui, has not changed the total amount of phosphate rock resources it controls in the past six years. Its wholly-owned subsidiary, Susong Liuguo, has 20.6922 million tons of phosphate rock resources and designed recoverable reserves of 18.623 million tons; Mingzhu Phosphate, which holds a 15% stake, owns Dongjiabao and Cangwuya phosphate mines in Yichang, with a total recoverable and proven reserves of about 65 million tons.

The phosphate rock resources that Xingfa Group, Hubei Yihua, Tianyuan Group and Yuntianhua can control are still uncertain, which has become the biggest highlight in the future.

At present, the exploration work of the Wawu Fourth Mine Section and Houping of Xingfa Group is still in progress. The western mining section of Jiangjiadun Phosphate Mine in Hubei Yihua has obtained mining rights, with a mining capacity of 300,000 tons/year, resource reserves of 28.89 million tons, and an average grade of phosphate rock of 27.18%. The eastern mining section is under exploration. The company's wholly-owned subsidiary Yihua Fertilizer Industry holds 82.54% of Huarui Mining, which obtained the prospecting rights for Kahalo Phosphate Mine in Leibo County, Liangshan Yi Autonomous Prefecture, Sichuan Province on August 14, 2011.

In September 2010, Tianyuan Group spent 215 million yuan to increase the capital of Changhe Electric Power and obtained the mining rights of Dingjiawan Phosphate Mine in Mabian Wuxian; the mining area has a proven reserve of 42.747 million tons and recoverable reserves of 33.3512 million tons. The company said that it will continue to integrate the phosphate resources around Mabian in the future.

Yuntianhua, which is still suspended, has announced that Yuntianhua Group intends to inject phosphate fertilizer and phosphate chemical related assets into the listed company. Because the verification procedures for some mining resource reserves have yet to be completed, it has been delayed in resuming trading. It is reported that the phosphate resources obtained by Yuntianhua Group for the mining right certificate are 500 million tons, and it currently has an annual production capacity of 10 million tons of phosphate and 5 million tons of phosphate fertilizer. (Xu Jinmin, Daily Economic News)