China VAT cut unlikely to affect fertilizers long term

China's cut in its value-added tax (VAT) is unlikely to have a substantial impact on fertilizer and raw material trade or pricing in the long term.

China will cut its VAT rate from 16pc to 13pc for most industries and from 10pc to 9pc for some other sectors, including transport and construction, Chinese premier Li Keqiang told the national people's congress in Beijing yesterday. No date was announced but it is expected to start on 1 May as last year. China's central government last year cut the VAT to 16pc on fertilizer raw materials and 10pc on finished fertilizers from 17pc and 11pc respectively.

The VAT for fertilizer raw materials such as ammonia, phosphate rock and sulphur is now expected to fall to 13pc, with finished fertilizer such as urea, DAP and NPKs dropping to 9pc.

The reduced tax burden could see finished fertilizer and raw material prices rises, some market participants said, but no substantial increase is expected from the modest tax cut.

There have been initial drops in domestic sulphur prices, which fell a modest 10 yuan/t ($1.50/t) after the announcement. But this is seen as more of an immediate reaction and not the start of a trend.