In early January 2005, the National Development and Reform Commission and the Ministry of Finance introduced the "Administrative Measures for Commercial Reserves during the Off-Season Fertilizer Period." At the time, fertilizer companies were eager to participate in temporary reserves, with both manufacturers and distributors rushing to seize the opportunity. However, since only large state-owned enterprises were eligible for the light-storage bids, many private firms and SMEs expressed strong dissatisfaction. But things have changed. Recently, reporters noticed that despite no major policy changes, the frenzy of companies competing for light reserves has disappeared. Why? One key reason is the rising market prices, which have made purchasing fertilizers for storage less attractive. Currently, both domestic and international fertilizer markets are not favorable for light storage, leading to lower enthusiasm among businesses. Since August, international fertilizer prices have surged, pushing up domestic prices as well. Urea prices have risen by about RMB 100 per ton compared to July, while DAP and other high-concentration fertilizers have also seen significant increases. According to the national schedule for off-season fertilizer reserves, companies must complete procurement and storage between October this year and March next year. During this period, urea export tariffs are low, and exports are at their peak, further driving up domestic prices. This makes it difficult for reserve companies to purchase fertilizers without facing higher costs and increased risks. With export tariffs expected to rise to 30% next year, some companies may be forced to buy more now, but this could lead to a surge in domestic prices, increasing costs and risks. “If 8 million tons of reserves are purchased quickly, yet prices don’t rise, what’s the point? Will companies still go through with it? Will they lose money?” asked one executive. Another factor is overcapacity. China’s fertilizer production, especially nitrogen and phosphate, is currently oversupplied. In recent years, domestic fertilizer supply has exceeded demand, particularly for nitrogen-based products. From January to August this year, total fertilizer output rose by 11.7% to 37.665 million tons. With new capacity coming online and demand likely to decrease due to improved farming techniques, the surplus will grow even larger. Companies are now more cautious, fearing price drops and increased storage risks. Some companies have scaled back their reserve plans. For example, Shaanxi Luohe Coal Chemical Group, which stored 150,000 tons in the 2004/2005 season, only managed to store 50,000 tons this year in partnership with Zhejiang Agricultural Assets Group. “If we weren’t required to take part, we wouldn’t even want to take on 50,000 tons,” admitted a company official. Additionally, preferential policies have become less appealing. Although the government has tightened regulations and conducted more inter-provincial checks, the support remains limited to subsidized interest loans. A company executive calculated that the current discount of RMB 50 per ton is not enough to offset rising costs like warehousing, labor, and management. “With prices falling and losses growing, we need real subsidies, not just a small discount,” he said. Many companies are now avoiding participation in the national light-storage program, citing increasing risks and insufficient incentives. As one sales director from Hebei Cangzhou University put it, “The risk is too high, and the benefits are too low. We won’t take part this year.”

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