<article><p class="lead">China's decision to reinstate a processing trade policy for fertilizer products from 1 December will likely benefit phosphate, Mannheim SOP and compound fertilizer exports.</p><p>Phosphate fertilizer and compound fertilizer producers can use imported sulphur and MOP to produce processed phosphate fertilizers and compound fertilizers and will be <a href="https://direct.argusmedia.com/newsandanalysis/article/2161374">exempt from import tariffs and value-added tax</a> (VAT) for sulphur and MOP. Similarly, Mannheim SOP exporters can use imported MOP to produce SOP and will be exempt from import tariffs and VAT for MOP when exporting. </p><p>The impact on nitrogen fertilizer shipments will be limited as China is a net exporter of the product. China exported 4.9mnt of urea compared with 181,507t of urea imports in 2019. </p><p>For DAP exports, producers can theoretically save around 36 yuan/t ($5.50/t) after 1 December. Sulphur prices were at $100-104/t cfr China as of 19 November, and exporters would be able save 1.5pc on DAP export prices of $361/t fob today based on the current yuan exchange rate of 6.58 against the US dollar.</p><p>There is no big impact on each tonne of DAP. Large Chinese producers/exporters such as Guizhou Phosphate Chemicals, Yuntianhua (YTH) and Yihua may benefit from the policy as the country's DAP production is highly concentrated.</p><p>For Mannheim SOP exports, suppliers can theoretically save around Yn123/t on imported MOP prices of $220/t cfr based on the yuan exchange rate of 6.58 against the dollar, translating to savings of around 4.8pc on SOP export costs. The impact on potash exports would weigh on phosphate fertilizer exports. For compound fertilizer exports, suppliers also stand to benefit from the processing trade policy. </p><p>Chinese exporters are discussing measures to take advantage of the policy. But there is uncertainty surrounding the policy, with customs agencies in different areas explaining it differently. </p><p>Market participants are comparing current VAT deductions to the new VAT and import tariff exemption before arriving at any decision. The processing trade policy is favourable to suppliers, but market participants said imported cargoes would face strict customs supervision under the policy. More clarity on trade is expected after 1 December, although traded fertilizer volumes through processing trade may see noticeable growth once the policy is reinstated.</p></article>
