CHINA: FERTILIZERS FOR AGRICULTURE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000401050001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: July 22, 2010
• Sequence Number: 1
• Publication Date: May 4, 1983
• Content Type: MEMO

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Central intelligence Agency
DIRECTORATE OF INTELLIGENCE
4 MAY 1983
CHINA: FERTILIZERS FOR AGRICULTURE
We believe China will have difficulty meeting the modest
fertilizer production goals of the Sixth Five Year Plan. Since
1980, increases in fertilizer production have slowed sharply
because of lower investment, changing agricultural institutions,
and a restructuring of the fertilizer industry designed to.
increase efficiency. Plans for expansion of potassium and
phosphate fertilizer production are, we believe, overly
ambitious, and China will have to increase imports substantially
to meet the levels we project will be necessary to achieve
agricultural production targets. China will probably continue to
reduce its dependence on Japan for nitrogen fertilizers and
increase purchases of lower-priced Soviet Bloc and OPEC products,
as well as phosphates and compound fertilizers from the United
States and potassium from Canada. We estimate that 1985
purchases of fertilizers could cost more than $1.2 billion, about
4 percent of total planned 1985 imports.
We expect China to increase outlays for new fertilizer
capacity through mid-decade, but investment levels will not reach
the peak levels of the mid-1970s. Most new projects will be for
phosphates, potassium, and compound fertilizers. Energy
efficiency and the availability of coal-based processes will be
major considerations in technology selection. China probably
will seek few whole plant imports, and those will probably be
purchased from West German and Japanese chemical plant
contractors. US firms will probably be involved in licensing
technologies, designing plant layouts, and particularly in
upgrading existing facilities.
Production Trails Demand
Consumption of chemical fertilizers in China continues to
outpace domestic production (see Table 1), despite heavy
This memorandum was prepared by
Division of the Office of East Asian Analysis.
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investment through the mid-1970s designed to overcome the
problem. Between 1973 and 1982, China nearly tripled chemical
fertilizer production. A large share of the increase can be
attributed to the 1972-3 import of 13 large nitrogen fertilizer
plants which began operations after 1976.
Based on fertilizer consumption trends and planned increases
in agricultural production through 1985, we expect consumption to
increase at 4 to 6 percent per year, yet China's plans call for
only 1 percent annual growth in production. China's actual
fertilizer use (in kilograms applied per hectare) is still only
about half the world average, leaving considerable room for
continued consumption growth.
Table 1. The Production-Consumption Gap, 1973-85*
(thousand metric tons)
Year
Production
Consump
tion
Dif
ference
1985
Scenario I**
13,400
18,04
9
4,649
1985
Scenario II**
13,400
17,04
6
3,646
1982
12,990
15,15
4
2,164
1981
12,390
14,53
6
2,146
1980
12,320
13,55
6
1,236
1979
10,653
11,49
5
842
1978
8,693
9,52
4
831
1977
7,238
7,58
1
343
1976
5,244
6,24
4
1,000
1975
5,247
5,88
9
642
1974
4,222
5 , 5"5
7
1,335
1973
4,592
5,59
8
1,006
* Data for 1973-81 from Zhang Qinhan and Zhai Xi, "The
Production Consumption and Importation Statistical Figures of
Chinese Chemical Fertilizers in Recent Ten Years." Both authors
are officials of the Chemical Fertilizer Department, Ministry of
Chemical Industry. Production data for 1982 is from State
Statistical Bureau announcements; consumption for 1982 is
estimated on the basis of available production and import data.
** Scenario I for 1985 assumes planned production levels and a 6
percent annual increase in consumption; Scenario II assumes
planned production levels and a 4 percent annual increase in
consumption.
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Investment Declining
Chinese government and press reports maintain that, because
of the production-consumption gap, chemical fertilizer is a top-
priority industry. Investment, however, has dropped sharply
since 1977 (see Table 2). Investment had been high through the
mid-1970s, when China added many domestic plants in addition to
the imported facilities. We believe investment slumped
thereafter for several reasons:
o Readjustment policies begun in 1979 forced the
Ministry of Chemical Industry to reassess its
expansion policies, close many small inefficient
plants, and reconsider the availability of feedstocks
for additional large plants;
o Beijing probably wanted to delay further major
expansion of agricultural inputs until the effect of
incentive-oriented agricultural reforms could be
evaluated; and
o A worldwide abundance of fertilizers pushed
international prices down and made imports more
attractive than building new capacity.
Table 2. Investment in Chemical Fertilizer and Pesticides*
Year
Million Current
Yuan
Share of Industrial
Investment
Percent Change
from Previous Year
1981
442
2.1
-50.4
1980
891
3.3
-27.8
1979
1,234
4.8
-17.7
1978
1,500
5.5
-21.3
1977
1,907
8.8
* Investment in pesticides amounted to 15 million yuan in 1981
and 61 million in 1980. We have insufficient data to separate
fertilizer from the total investment figures in prior years.
The Ministry of Chemical Industry recently announced
resumption of work on three imported plants postponed by
readjustment, and several additional projects are underway or
planned (see section on imported plants, below). We believe that
this signals an end to the hiatus in fertilizer industry
development and that investment will increase slowly over the
next few years.
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Energy's Role in Reshaping the Fertilizer Industry
China is trying to improve the industry's efficiency through
energy conservation measures. Energy waste in the fertilizer
industry already has led to closure of more than 600 small plants
since 1980. The main reason for the efficiency drive was the
rapid increase in the share of energy consumed by the fertilizer
industry, largely caused by a proliferation of small, inefficient
plants built in the mid-1970s by localities for self-
sufficiency. Data is not available to calculate energy use for
the whole fertilizer industry, but we estimate that about 3.4
percent of total primary energy production is used to manufacture
ammonia and convert it into nitrogen fertilizer (see Table 3).
At any rate, Beijing clearly has been concerned about the
industry's energy consumption levels. The energy efficiency
drive has resulted in about a 10 percent efficiency improvement
annually since 1976, primarily a result of the closure of so many
small plants and the increased impact of energy-efficient
imported plants. We do not expect efficiency improvements to
continue at this rate. At 1985 planned output levels, the
nitrogen fertilizer industry will still use an estimated 3.3
percent of primary energy production, or about 22.4 million
metric tons of standard coal equivalent (sce), according to our
estimates.
Table 3. China: Energy Consumption for Nitrogen Fertilizer Production
Ene
(mi
to
rgy Consumpt
llion metric
ns of sce*)
io
n Share of National
Energy Production
(percent)
Energy Consumption
Per Ton of Nitrogen
(tons of sce)
1985**
22.79
3.3
2.16
1981
22.23
3.3
2.25
1980
23.05
3.6
2.31
1979
22.40
3.5
2.54
1978
22.18
3.4
2.90
1977
18.30
3.3
3.32
1976
14.07
2.8
3.68
* Standard coal equivalent
** Calculated from 1985 plan data
We do not believe that energy consumption levels have been
or will be a limiting factor in fertilizer industry development,
but Beijing has changed its long-run fertilizer development plan
to consider more carefully energy factors. Shortages of natural
gas in the late 1970s prevented some of the imported urea plants
from operating at capacity, and inadequate natural gas delivery
systems forced China to convert two plants -- at considerable
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expense -- to naphtha feedstocks. As a result, the Chinese no
longer expect to develop a large nitrogen fertilizer sector based
on natural gas. Coal now seems to be the favored energy source,
with at least two large coal-fired plants under construction.
These feedstock problems have caused short-run output losses, may
have constrained the production targets for 1985, and will
continue to affect long-term industry planning.
Table 4. Estimated Energy Feedstocks
for Nitrogen Fertilizer Production
Coal El
ectricity Natural Gas/N
aphtha
(million (
Year metric tons) ki
billion (billion cubic
lowatt hours) meters)
1981 23.2 (3.8)* 1
6.9 (5.4) 4.1
1980 24.4 (4.0) 1
7.7 (5.9) 3.9
1979 24.6 (3.9) 1
6.9 (6.0) 3.3
1978 25.7 (4.1) 1
7.0 (6.6) 2.5
1977 21.8 (3.9) 1
4.7 (6.5) 1.5
1976 18.3 (3.8) 1
3.3 (6.5) 0.2
Share of national production of coal and electricity shown in
parentheses. Calculations for natural gas and Naphtha is not
feasible because of a lack of data on naphtha production and on
the share represented by each fuel.
Production Problems Complicate Planning
A pressing problem for the Ministry of Chemical Industry is
product mix. Nitrogen fertilizer (N) dominates the industry,
accounting for 80 percent of total production; phosphates (P)
represent nearly all of the remainder; potassium (K) production
is negligible (see Table 5). This product mix includes too
little phosphate and potassium and the resulting imbalance
reduces the effectiveness of fertilizer applications. In 1978,
China's NPK application ratio was 1:0.32:0.02, far below the
optimal ratio recommended by Western specialists of 1:0.50:0.33;
this optimal ratio would require a 57 percent increase in the
supply of phosphates, and a 16-fold increase in potassium.
At least some of the nutrient shortfall is offset by organic
fertilizers, but Ministry officials have expressed considerable
concern over the imbalance in product mix. The problem has been
aggravated by the small plant closures in 1978-80. We estimate
that these plants could have produced up to 1.5 million metric
tons per year of nitrogen fertilizer and, more importantly, 1
million metric tons of phosphate fertilizer.
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Table 5. PRC: Chemical Fertilizer Production
(million metric tons of nutrients)
Year
Total
Increase
Percent
Nitrogen
Phosphates
Pota
ssium
1982
12.99
4.8
10.26
2.71
0.03
1981
12.39
0.0
9.86
2.51
0.02
1980
12.39
16.3
9.99
2.31
0.02
1979
10.65
22.6
8.82
1.82
0.02
1978
8.69
20.0
7.64
1.03
0.02
1977
7.24
38.2
5.51
1.71
0.02
1976
5.24
3.82
1.42
0.01
Product quality has evoked concern as well. Although the
closure of the small inefficient plants probably marginally
increased overall quality, most Chinese fertilizers do not meet
international standards. When available, Chinese consumers
prefer imported to domestically produced fertilizers -- which
sell at the same price -- because of the vast difference in
quality. Chinese workers have tried to duplicate the quality of
Japanese urea, but have not been able to do so, primarily because
of outmoded equipment. In addition, the majority of Chinese
nitrogen fertilizer is still ammonium bicarbonate, which is
volatile and deteriorates rapidly between factory and field.
Improvements in distribution would help by moving the product
more quickly to consumers, but bagging facilities and
transportation are inadequate and delays are the rule. We
estimate that delivery time from port or plant to field averages
Imports: A Continuing Requirement
Despite increases in domestic production, China's dependence
on imports will probably increase over the next several years.
According to Ministry of Chemical Industry data, imports
accounted for 15 percent of fertilizer supplies in 1981 (see
Table 6). Imports as a share of supply dropped steadily through
the 1970s because of increased production, relatively slower
growth in consumption, and higher world fertilizer prices.
Annual increases in consumption of 4 to 6 percent will
necessitate growth in imports of 13 to 23 percent per year
through 1985. Our low estimate of fertilizer import expenditures
in 1985, $805 million, assumes 13 percent annual growth and
stable prices. At 23 percent growth and with a revival of now-
depressed prices, China's fertilizer imports could cost more than
$1.2 billion, about 4 percent of total planned 1985 imports; this
is about the same share of imports represented by fertilizers in
1979, and a little lower than the 1980-81 shares.
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Table 6. The Role of Fertilizer Imports, 1972-82
Year
Production Imports Consumption
(thousand metric tons of nutrients)
Imports
Share of
Consumption
(percent)
1985 (4%)*
13,400
3,646
17,046
21.4
1985 (6%)*
13,400
4,649
18,049
25.8
1982**
12,990
2,519
15,154
15.9
1981
12,390
2,290
14,536
15.0
1980
12,320
2,058
13,556
14.0
1979
10,653
1,748
11,495
14.1
1978
8,693
1,504
9,524
14.8
1977
7,528
1,322
7,581
15.0
1976
5,244
960
6,244
16.0
1975
5,247
1,037
5,889
17.9
1974
4,222
1,067
5,557
21.4
1973
4,592
1,306
5,598
24.3
* Projections for 1985, using the planned production level and
4 to 6 percent average annual growth estimates for consumption.
** Consumption data estimated based on production and prior year
import data; import data equals consumption less production.
Import composition and suppliers. Although China's
fertilizer imports continue to'be dominated by the Japanese,
other countries, including the United States, will increase their
market share over the next few years. Nitrogenous fertilizers --
particularly urea -- are the bulk of Chinese fertilizer imports
(see Table 7). Japan supplies 30 to 40 percent of China's
imports, and China accounts for 60 to 67 percent of Japan's total
nitrogen fertilizer exports. Since 1980, cutbacks in Chinese
purchases from Japan -- the result of higher prices, increased
Chinese domestic capacity, and greater interest in compound
fertilizers -- have hit Japanese industry particularly hard. Up
to one-third of Japanese ammonia capacity may be shut down,
primarily because of declining sales to China. East European,
Soviet, and OPEC suppliers are also assuming larger shares of the
Chinese market, primarily on the basis of lower prices.
At present, the United States is the source of perhaps 80 25X1
percent of China's imports of manufactured phosphate fertilizers,
primarily concentrated superphosphates. The United States is
also China's largest supplier of compound fertilizers. China has
been focusing on purchases of diammonium phosphate (DAP) which
has high nitrogen and phosphate content. China has explored
buying DAP but still obtains most 25X1
from the United States. Morocco and Jordan supply most of
China's phosphate rock imports. For potassium fertilizers,
Canada is the dominant supplier. 25X1
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As the primary supplier, US producers should benefit from
the increasing share of Chinese imports represented by phosphates
and compound fertilizers. Since the mid-1970s, nitrogen has
accounted for a rapidly decreasing share of China's fertilizer
expenditures, with purchases of compound fertilizers rising
sharply and of phosphates and potassium increasing more slowly.
The total value of all fertilizer imports increased at an average
annual rate of about 13 percent between 1975 and 1981, of which
nitrogen increased 5 percent annually, phosphates 32 percent, and
potassium and compound fertilizers both 65 percent. Although one
industry journal claims that China is currently over-stocked with
compound fertilizers we do not expect purchases of compounds to
diminish.
Table 7. Nutrient Composition of Fertilizer Imports
(percent share of expenditues on fertilizer imports
Year
Nitrogen
Phosphates
Potassium
Compound
1981
61
10
11
18
1980
68
8
5
18
1979
83
7
6
4
1978
75
8
2
15
1977
84
7
1
8
1976
93
6
0
1
1975
93
4
1
2
A More Astute Consumer. China is becoming a more
sophisticated buyer in the international fertilizer markets.
Because China is generally the world's largest fertilizer buyer,
its actions can have an impact on world prices. On occasion,
Beijing has entered world markets looking to make purchases, and
the attendant publicity has driven prices up before a sale could
be completed. In recent years, Beijing has diversified purchases
to dampen effects on prices, signing smaller contracts with a
large number of brokers and producers.
Although continuing to purchase from traditional suppliers
-- Japan, Canada, and the United States being dominant --
Sinochem, the Chinese chemical trade organization, has committed
40 percent of known year-to-date contracts to Saudi Arabia and
Kuwait, and may make additional purchases from Middle Eastern
suppliers.
Imported Plants and Equipment. A major factor in the
changed composition of fertilizer imports in the late 1970s was
the initiation of operations at the 13 large ammonia-urea
complexes purchased in 1972-73. We estimate that by 1980, these
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plants accounted for nearly one-fourth of China's nitrogen
fertilizer production and about 80 percent of total urea
output.
The Chinese have constructed a duplicate of these complexes
at a site near Shanghai. The copy took only slightly longer to
build than the imported plants and has been at least partially
operating for about four years. Apparently China has not yet
been able to repeat the accomplishment, however, and has had to
purchase two additional complexes from German and Japanese
suppliers for completion in 1984-5.
China has 11.8 billion tons of phosphorous ore reserves --
the fourth largest in the world after the United States, Soviet
Union, and Morocco.
impurities in Chinese phosphate rock limit the development
of a large-scale phosphate fertilizer industry with current
technologies. The China National Chemical Construction
Corporation nonetheless tentatively plans to build trisodium
phosphate and diammonium phosphate plants in Shanghai, probably
using US technologies. Construction started early this year on
China's first large compound fertilizer plant, which will produce
900,000 tons per year of nitrophosphate using West German and
Japanese equipment. Three large phosphate mines planned for
completion in 1985 would help provide feedstocks for these
projects.
An Irish firm is conducting feasibility studies for, a
potassium project in western Qinghai Province. China, with
United Nations Development Program aid, plans a 1 million ton-
per-year extraction facility at the site, which has reserves of
about 100 million tons of potassium chloride. This is the only
known large potassium project currently underway
US firms will probably participate in any expansion of
China's fertilizer industry primarily by designing new facilities
and licensing technologies, especially for ammonia and sulfuric
acid processes used in urea and phosphate fertilizer plants.
Japanese and European firms dominate the manufacture and assembly
of chemical fertilizer plant equipment.
China may seek Western help to upgrade existing ammonia
plants. US and UK firms have developed methods by which existing
plants can be renovated to produce better quality ammonia using
20 percent less energy. This type of plant improvement would be
consistent with Beijing's modernization drive.
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Prospects for 1985
According to the Sixth Five Year Plan (1981-85), China
intends to shore up the phosphate and potassium sectors and
maintain very slow growth in nitrogen fertilizer production. New
capacity additions by 1985 are to include 2.24 million tons of
urea, 1.52 million tons of ammonia, and 46,000 tons of
phosphates. 25X1
Table 8. Fertilizer Output Plans,,1985
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Planned Production
(million metric tons Increase over 1982
of nutrient) (Percent)
Total
13.4 3.1
Nitrogen
10.55 2.9
Phosphate
2.80 3.4
Potassium
0.05 92.3
We do not expect the Chinese to meet these goals. Large-
scale nitrogen fertilizer plants now under construction will
probably not be completed on schedule. Local authorities will
fight to keep their small plants operating and thereby undercut
Ministry efforts to streamline the industry. As a result, total
nitrogen fertilizer production may exceed the target in volume
terms, but, because of the continued operation of small plants,
Beijing's objectives for improvements in product quality and raw
material consumption will not be accomplished.
Increases in phosphate production may be possible but we
expect most of the planned increase to come from use of ground
phosphate rock rather than manufactured fertilizers. We do not
expect the Chinese will be able to achieve goals for potassium
output. It is very unlikely that the Qinghai project could be
productive by 1985. Smaller domestically developed projects
could add some capacity, but not the planned volume. In
addition, transportation bottlenecks could complicate the
exploitation of remotely located phosphate and potassium
projects. Even if expansion of phosphate and potassium
production were to meet goals, the increase will not offset
planned growth in nitrogen production, so an improved NPK ratio
in fertilizer applications will depend on imports of phosphates
and potassium -- assuming, of course, that all of the available
nitrogen fertilizer will be used.
We therefore expect imports to continue at high levels. The
extent of import expansion will depend in part on international
price levels, availability of hard currency for payments, and
transportation. Late last year, Beijing completed a
1500-ton-per-day bagging facility near Shanghai to take advantage
of lower bulk prices (bagging adds up to $25 per ton) and to
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alleviate transportation congestion. Some urea imports will
probably continue to shift from Japayi to the Middle East, Eastern
Europe, and the Soviet Union. Canada will remain the dominant
supplier of potassium fertilizers, and the United States of
phosphate and nitrogen/phosphate compounds.
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SUBJECT: China: Fertilizers for Agriculture
Distribution:
Department of State
1 - Lorraine Takahashi, Office of Chinese Affairs, Bureau of East
Asian and Pacific Affairs
1 - Priscilla Stowe, Office of Economic Analysis, Bureau of
Intelligence and Research
Department of Commerce
1 - Jeffrey Lee, China Division, Office of East Asia
Department of Agriculture
1 - Charles Liu, Economic Research Service
1 - A. L. Erisman, Foreign Agricultural Service
US Trade Representative
1 - William C. Triplett, Director, East-West Affairs
Central Intelligence Agency
1 - D/OEA
1 - D/NIC
1 - NIO/EA
1 - PDB
1 - Exec. Dir/DCI
2 - DDI
1 - Chief, China Division
1 CH/FOR
1 - CH/DEF
1 - CH/DOM
1 - CH/DEV
FR
-
-
FBIS/NEAAD/CE
SOVA/SE/I
1 - OCR/ISG
1 - OCR/EA
1 - Chief, China DDO
1 - C/PES/DDI
2 - FBIS Analysis Group
5 - OCO/IMB/CB
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