Demand, price fall created challenges but investment in capacity expansion, innovation still surged

Date:03-12-2024

This article is initially published in 2024 China Pesticide Industry Watch magaznie , click to read and downlowd 

In 2023, as the world walked away from the COVID-19 pandemic, the economies of many countries recovered and improved continuously, despite the impact of regional wars. 

In the first three quarters of the year, China’s economic growth was impressive among major global economies, with a total GDP of RMB91.3 trillion yuan, 5.2% up year-on-year. However, because of the international environment and the global economic downturn, the overall economic condition of the global petrochemical industry declined in 2023, and pesticides, as a downstream fine chemical industry sector, was naturally affected.

In 2023, the Chinese pesticide market experienced a challenging year, when it faced the most severe challenges caused by weak market demand and high levels of stocks, which made the skyrocketing pesticide prices in previous years go downward, resulting in negative growth in the exportation of Chinese enterprises after years of continuous growth.

Nevertheless, Chinese manufacturers were still enthusiastic about investment and expansion in pesticides. Therefore, the overall pesticide production capacity approached saturation and even overcapacity. Moreover, the return of investment in independent creations made by some Chinese companies began to emerge, with products being launched in the domestic market while awaiting sale opportunities in overseas markets.

In the following papers, we will offer an overview of the operations of the Chinese agrochemical industry in seven dimensions, covering industry policy, production, registration, pricing, export, corporate performance, and innovation, to help you understand the basic situation of the Chinese pesticide industry, as well as the future business operations of Chinese agrochemical enterprises and their product development trends.

 2023 pesticide policy focused on industry regulation to improve management through scientific and accurate approach 

The ending of the three-year COVID-19 pandemic brought about a good business environment to further develop the Chinese pesticide industry, along with the continued release of national support policies, which facilitated the sound development of the industry. 

In 2023, the Chinese government introduced a series of policies and measures for registration, production, and sales to accelerate the phaseout of highly toxic pesticides from the market, aiming to further strengthen registration administration and market management, ensure the safety and effectiveness of pesticides, improve the science and accuracy of pesticide management to promote innovative, green and high-quality development of the pesticide industry.

- On December 26, 2023, the Department of Pesticide Administration of the Ministry of Agriculture and Rural Affairs issued the Letter Asking for Opinions on Management Measures of Pesticide Granule Under Nong Nong Pesticide Ref [2023] No. 99. The purpose was to strengthen risk management, control registration and use of pesticide granules, covering classified management, catalog management and sorting out registered products within the given time.

- On December 25, 2023, the Ministry of Agriculture and Rural Affairs issued Announcement No. 736, which decided to ban four highly toxic pesticides, including omethoate, carbofuran, methomyl, and aldicarb, to secure the quality and safety of agricultural products, human and animal safety, and the protection of the ecological environment. According to this announcement, the technical material manufacturers had to be monitored. 

- On July 25, 2023, the Department of Pesticide Administration of the Ministry of Agriculture and Rural Affairs issued the Letter Asking for Opinions on Management of the Pesticide Registration Agency Service (Draft for Comment), aiming to further standardize the pesticide registration agency service to ensure an orderly proceeding of pesticide registration testing, pesticide registration application and evaluation, thus providing a scientific, effective, open and fair registration process and grant of registration.

- On June 20, 2023, the Department of Pesticide Administration of the Ministry of Agriculture and Rural Affairs issued the Letter Asking for Opinions on Administrative Measures for Pesticide Dealership (Draft for Comment), to further strengthen the administration of the pesticide dealership and standardization of pesticide dealer behavior to facilitate the scientific and rational use of pesticides.

- On June 14, 2023, to further standardize the supervision and administration of pesticide labels and user instructions, scientifically and reasonably guide the use of pesticides, and ensure the safety and effectiveness of pesticides, the Department of Pesticide Administration of the Ministry of Agriculture and Rural Affairs issued the Letter Asking for Opinions on Measures for Administration of Pesticide Label and User Instruction (Draft for Comment).

- On May 18, 2023, to further standardize the pesticide industry operation and production activities, the Department of Pesticide Administration of the Ministry of Agriculture and Rural Affairs issued the Letter Asking for Opinions on Administrative Measures for Pesticide Production Licensing (Draft for Comment), to govern newly emerged issues in pesticide production.

- On May 11, 2023, the Department of Pesticide Administration of the Ministry of Agriculture and Rural Affairs issued the Letter Asking for Opinions on Administrative Measures for Pesticide Registration (Draft for Comment), with a view to further improve the supportive regulations for pesticide registration.

In addition, the National Food Safety Standard Maximum Residue Limits, 112 Pesticides including 2,4-d-sodium salt in Food (GB 2763.1-2022), was officially implemented from May 11, 2023. Among them, the maximum residue limit of procymidone in leeks was changed from the current 0.2mg/kg to 5mg/kg, to solve the problem of frequent occurrence of excessive procymidone residues in leeks to enable production more scientific and practical. 

As the GMO crop commercialization is advancing constantly in China, China’s polit industrialization of planting herbicide-tolerant GM soy, insect-resistant and herbicide-tolerant GM corn are advancing rapidly, which will gradually affect the related herbicides such as glyphosate and glufosinate.

The pesticide administration’s significant change in the registration of pesticide formulations, i.e., the ″one product, one certificate″ system, will be a hot topic of concern and discussion in the industry this year. Although implementing this policy will have a significant impact on the production and operational activities of some agency producers and pesticide dealers, it will alleviate the intense competition between pesticide manufacturers and change the market disorder for the better.

  Investments in pesticide production capacity remained hot, approached overcapacity in 2023  

The 14th Five Year Plan (2021-2025) is the start of China’s two ″centenary objectives″ initiative and the key five-year period for promoting the high-quality development of all industries in the national economy. 

China is the world’s largest producer and exporter of pesticides, with nearly 85% being exported to over 180 countries and regions during peak years. After the concentration and replanning of capacity occurred after the phaseout of outdated capacities resulting from environmental protection and safety regulations adopted in 2017-2018, China’s pesticide investment and production gradually stabilized from 2020. Stimulated by demand during the COVID-19 pandemic, pesticide production in China also showed more stable growth.

In 2023, with the end of the COVID-19 pandemic and relaxed lockdown measures, the domestic economy began to recover slowly. In 2021-2022, pesticide prices were running at high levels for two consecutive years, leading to overbuying at the buyer’s end and resulting in low demand in 2023. However, with the highly expected economic rebound, investments in pesticide production capacity remained hot in 2023. The total production of chemical pesticides in 2023 increased by 2.8% over the previous year, reaching a total production volume of 2.671 million tons (Fig1). Currently, it is apparent that the capacity of some products might be overinvested, and the whole industry is approaching overcapacity.

According to statistics from the China Petroleum and Chemical Industry Planning Institute, the capacity investment in Chinese pesticide industry in recent years was RMB16.518 billion yuan in 2021 and RMB15.074 billion yuan in 2022, respectively, while from January to the end of September 2023, this investment skyrocketed to RMB31.905 billion yuan, which was more than double the total in 2022.

From 2021 to September 2023, the new production capacity formed by investments in Chinese agrichemical industry reached an annual 559,900 tons of materials, which involved the annual production of 139,400 tons of insecticides, 178,400 tons of fungicides, 242,100 tons of herbicides, 1.135 million tons of intermediates and 536,400 tons of formulations (Fig. 2).

In terms of regions, the provinces with largest investments include Shandong, Liaoning, Anhui, and Hubei. The hottest pesticide varieties for investments are L-Glufosinate, (glufosinate), chlorantraniliprole, propiconazole and some of the pesticide intermediates (Table 1).

Since the 13th and 14th Five Year Plan, the newly built technical material production capacity has been close to an annual 1.2 million tons, requiring a certain period to become operational, consolidated and consumed. Although pesticides are necessary products, consumption can only be increased by the explored expansion of use, and not promotion or guidance for consumption like other consumer goods. Also, the consumption of pesticides faces the pressure of reduced use. In addition, the exportation of pesticides faces fierce market competition and the risk of alternative sources of exports from other countries and regions. Investments in pesticide industry are expected to return to practicality and rationality in the last two years of the 14th Five Year Plan period, when the investment value may decline significantly.

  Registration trends: Surge in new registrations, diversified formulations, leading insecticides  

In 2023, the number of newly granted pesticide registrations in China reached 1,250, a significant rise from 500 in 2022. Despite this fact, this growth in 2023 still failed to reach the 2021 figure of 2,884 registrations. The registrations in 2023 included 103 technical materials/technical concentrates and 1,147 formulations with the largest number of SC formulations, followed by SL and EC formulations, which ranked second and third, respectively(Fig1). 

Fig1. 2023 Registrations of Type of Formulations

In 2023, the Chinese pesticide market witnessed the first-time registration of six active ingredients, including Butroxydim, Fluorochloridone, Pyrasulfotole, Chloridazon, Dimethenamid-P, and 3-Fluoropyridine (Table1). Rainbow accounted for many new registrations, having successfully obtained three new AI registrations for the first time in China, followed by Sino Agri Union with two regstrations and Syngenta with 1.

Among the pesticide registrations in 2023, insecticides topped the list with 454 registrations, surpassing the 430 herbicide registrations, reflecting the widespread application and demand for insecticides in agricultural production (Fig2,3). In terms of technical material/technical concentrates, the registration trend in 2023 was like in 2022, with the top three registrations being prothioconazole (10 technical materials), L-Glufosinate (6 technical materials and 3 technical concentrates) and chlorantraniliprole (8 technical materials). In addition, topramezone (7 technical materials), chlorimuron-ethyl (7 technical materials) and Teflubenzuron (4 technical materials) were major registrations in 2023. 

In 2022, with the implementation and optimization of China’s export-only registration policy (EX pesticides), relevant manufacturers benefited significantly, resulting in a rapid rise in the number of registrations of EX pesticides. Looking at 2023, the number of registrations of EX pesticides increased steadily from 192 in 2022 to 197, including 33 technical materials/technical concentrates, accounting for 16.7% (Table2). 

  Price volatility: Market dynamics under imbalanced supply, demand  

In 2023, global sourcing in the agrochemical industry experienced unprecedented challenges. The weak market demand, high level stocks, continuous price decline and uncertainty in the global economic environment significantly affected the agrochemical market that year. Whether herbicides, insecticides and fungicides, almost no market segment escaped from these impacts, resulting in falling product prices down to rock bottom.

This year, we are still witnessing an imbalance between supply and demand in the agrochemical market. With the decline of new orders and the release of downstream production capacity, market demand declined sharply, resulting in increased inventories for manufacturers and subsequent drops in product prices. This trend reached its peak at the end of the second quarter of 2023, when the prices of most products fell to near the cost of production. Thereafter, the market returned to rationality, where downstream purchases were made according to immediate needs rather than purchasing for stockpiling. 

In 2023, the herbicide market experienced a difficult period. During the year, the overall performance of herbicides showed a downward trend, with weak market demand and slow trading, resulting in continued price falls. This trend was especially evident in the first half of the year, when prices continued to fall despite the relatively short supply of some products. In the second half of the year, with the rise of manufacturers’ inventories and the further shrinkage of market demand, the prices of herbicides suffered more declines, as market competition was intense and the price falls of products accelerated as fast as previous price rises. By the end of the year, prices fell back to near the cost of production.

As a key variety in the herbicide market, the price of glyphosate remained on a downward trend throughout 2023(Fig1). In the first quarter, the price of glyphosate fell its 2020 level in June, with the lowest transaction price being around RMB23,000 yuan. Although purchase orders picked up in July, manufacturers’ inventories decreased and prices rose to some extent, prices again fell to RMB26,500 yuan and lower by the end of December, a decline of over 46% in the year. 

The market for glufosinate was even worse (Fig2), and its price continued to decline in 2023. From the start of this year to the second quarter, the price of glufosinate fell from RMB150,000 yuan to some RMB62,000 yuan. It rose a little in the third quarter but fell again due to weak demand. By the end of the year, the price of glufosinate remained at some RMB68,000 yuan, a decline of more than 60% in the year. 

See more products’ price change, and the following section of Pesticide Export, Pesticide Company Performance, and Pesticide Innovation, please download the magazine to get full article:

2024 China Pesticide Industry Watch