Figure 2: China, GCC and world fertilizer consumption

Source: World Band data and GPCA analysis, 2023

China’s chemical fertilizer production mostly consists of N, P and K, accounting for more than 60%, 18% and 13% respectively, of the total production in 2020. The total volume of chemical fertilizer production in China was on a growth trajectory, peaking at 74.32 million tons in 2015, but due to the “Action Plan for Zero Growth of Chemical Fertilizer Use by 2020”, the following six years it was on an overall declining trend reaching 55.44 million tons in 2021.

In general, as can be seen in Figure 2, higher fertilizer consumption per hectare can indicate a more intensive agricultural production system, which may result in higher crop yields. However, if not managed properly, it can lead to soil degradation, nutrient imbalance, and environmental pollution. In the GCC, fertilizer consumption fluctuated substantially in the early 2000s, until reaching a relatively steadier consumption rate in the past decade. On the other hand, China has a more consistent average value of 418.8 kg of fertilizers per hectare of arable land between 2005 and 2020 with a particular agricultural concentration in the south-eastern region. The large gap between the two regions can be attributed to the limited, natural, fertile land in the GCC as 90% is not fit for agriculture. Hence the GCC countries are adopting several strategies to address this issue aimed at increasing agricultural efficiency and productivity to maximize their yields.

The lower consumption rate of fertilizers, as a percentage of production, as registered in the GCC, indicates the lower demand for fertilizers compared to other regions, and the fact that the GCC region is a key global hub for fertilizer production and an export-driven industry. On the other hand, the high consumption rate as recorded in China indicates the strong demand for fertilizers, efficient utilization, and a growing agricultural sector.

2. China’s fertilizer trade and international impact

China is a major supplier of fertilizers to countries around the world. It has historically been one of the largest exporters of N and P-based fertilizers, although its exports have declined in recent years, due to government policies aimed at reducing overcapacity in the industry. This unexpected retreat of China from export markets has resulted in a decrease in the volume of fertilizers exported from China and has created supply constraints in some parts of the world. This has also led to price volatility in the global fertilizer market, with prices fluctuating more widely than in the past, making it more difficult to plan and manage production and supply chains. It has also created opportunities for other fertilizer producers to capture market share. Some countries, such as Russia and the United States have increased their exports of fertilizers to fill the gap left by China’s reduced exports.

Figure 3: Key fertilizer products price trends

Source: World Bank data and GPCA analysis, 2023

Figure 4: China’s trade (exports and imports) volume and value trend

Source: UN Comtrade and GPCA analysis, 2023

China is a major exporter of N-fertilizers such as urea and ammonium nitrate, and P-fertilizers such as diammonium phosphate (DAP) and monoammonium phosphate (MAP). It was the second largest fertilizer exporting country worldwide after Russia in 2021 (based on value). Some of the countries that China exports fertilizers to include South and Southeast Asian countries such as India, Indonesia, Bangladesh, Thailand, Vietnam, and the Middle Eastern countries. Additionally, China also exports fertilizers to African countries such as Egypt, Nigeria, and South Africa. The types and amounts of fertilizers exported vary depending on the demand and requirements of the importing countries. Major exporting companies in China include Sinofert Holdings Limited, Hubei Xinyangfeng Fertilizer, Wengfu Group, Luxi Chemical Group, China BlueChemical Ltd, Haifa chemicals, and China National Chemical Corporation (ChemChina).

In terms of imports, China is a significant importer of potash, as well as other fertilizers containing two or three of the elements: N, P & K. In 2022, the annual growth in N-fertilizer exports was primarily led by an increase in exports to Brazil (USD 85.2 million or 681%), Turkey (USD 71.7 million or 1.24k%), and Malaysia (USD 16.4 million or 574%). As for the yearly growth in N-fertilizer imports, Poland (USD 112,000 or 300%), Germany (USD 107,000 or 26.6%), and United Kingdom (USD 78.800 or 245%) were the leading markets.

3. Recent developments and outlook

In terms of market outlook, China’s fertilizer industry is positive and expected to grow in the coming years, driven by factors such as increasing demand for food and the need for higher crop yields to meet the growing population’s nutrition needs. The government is also actively promoting modern and sustainable agricultural practices, which is expected to drive demand for fertilizers. However, the industry may also face challenges related to fluctuations in raw material prices, regulatory changes, and competition from other fertilizer producers. Nevertheless, China’s strong position in the global fertilizer market, as well as its continued investments in technology and sustainability, suggest a positive outlook for the industry.

Moreover, the Belt and Road Initiative (BRI) has become a major priority for the Chinese government which aims to promote economic and infrastructure development in several countries across Asia, Europe, Africa and the Middle East. The initiative has attracted significant international attention and investment promoting cooperation and connectivity across the participating countries. It has had a positive impact on China’s fertilizer industry, by expanding access to raw materials such as phosphate rock and creating new export markets.

Figure 5: China’s fertilizer industry developments

Source: GPCA research

Figure 6: China’s chemical import from the GCC, million tons and % share (1992-2018)

Source: UN Comtrade database and GPCA research

4. China – GCC fertilizer industry relationship

Fertilizers were previously the main export product segment from the GCC to China, accounting for 75.4% of all GCC chemical exports to China. However, by 2018 there was only a marginal increase in total GCC fertilizer exports to China and the share of fertilizers in total GCC chemical exports to China fell to 1.8%, as can be seen in Figure 6. China’s drive to achieve self-sufficiency in fertilizer production and the impressive growth in GCC exports of the petrochemicals and polymers segments to China are the key reasons behind this.

China and the GCC countries do share some common export markets for fertilizers around the world including other Asian countries, Africa and Europe. However, they also have different market strengths and focuses. The China and GCC fertilizer industries are interrelated and can have a significant impact on each other.

1. Trade relations: The trade relationship between China and the GCC in the fertilizer industry is complex and dynamic, with both sides importing and exporting fertilizers from each other depending on factors such as demand, production levels, and price competitiveness. The two sides have been working to deepen their overall trade and investment relationship. A Free Trade Agreement (FTA) between China and the GCC countries is currently being negotiated and could have a significant impact on the fertilizer industry in the two regions in terms of trade volumes, improved market access, joint investments and partnerships, as well as technology transfer.

Additionally, the GCC plays an important role in the success of China’s BRI as the Arabian Gulf countries are strategically located at the crossroads of key trading routes, making them an important hub for China’s BRI projects. Reinforced by the Chinese president Xi Jinping’s visit to Saudi Arabia last December 2022, China has been actively seeking to deepen its engagement and strategic ties with the GCC countries through the BRI and 34 investment agreements worth USD 30 billion were signed on energy cooperation, technology, transportation, and infrastructure.

2. Competition and cooperation: While they may compete in some markets, China and GCC countries also cooperate in others, such as joint ventures and technology transfers. While the GCC countries have a competitive advantage in terms of their focus on environmental development in the fertilizer industry, this does not necessarily mean that they have a competitive advantage over China in the global fertilizer market. Both China and the GCC countries continue to compete for market share, with each increasingly trying to position themselves as leading producers of high-quality, sustainable fertilizers.

3. Resource availability: The GCC countries are major producers of natural gas, a key raw material for the production of fertilizers, while China has a growing demand for these resources. The GCC is vital for China’s energy security, while China provides the GCC with stable market for exports. The relationship between the two regions can thus impact the global supply and demand dynamics for natural gas and fertilizers.

4. Market dynamics: Demand for fertilizers in the GCC is driven by its growing agricultural sector, while China continues to be a key player in driving global demand for fertilizers. Changes in demand in either region can have a ripple effect on the global fertilizer market. In general, China’s retreat may have had a positive impact on GCC countries as it likely created additional export opportunities for them in the global fertilizer market and may have had the effect of propping up global fertilizer prices, which would benefit all producers, including those in the GCC.

5. Role in the future hydrogen market: The GCC has a more immediate role in the short-term for exporting blue ammonia as a hydrogen carrier due to their existing ammonia production capacity, infrastructure and strategic location. China’s long-term potential cannot be overlooked, given its large population, rapidly growing economy, and significant investments in green hydrogen and ammonia projects. The growing demand for hydrogen carriers like ammonia could provide new opportunities for trade and collaboration between China and the GCC countries leveraging their BRI partnership.

The global fertilizer market is dynamic and can change rapidly based on a variety of factors, such as change in demand, shifts in production patters, and government policies. As a result, the precise position of a country can change over time. Overall, the China-GCC relationship in the fertilizer industry is complementary, complex and multifaceted, and the two sides will continue to shape each other’s development in the future.