On 25 December 2019, Lier Chemical Co., Ltd. (Lier Chemical) made an announcement to suspend the production and combine production lines of its subsidiary, “To optimize the production process of our subsidiary, Guang'an Lier Chemical Co., Ltd. (Guang’an Lier), including glufosinate-ammonium technical, and achieve the combination with MDP production line, Guang'an Lier plans to implement production suspension and integration, with an estimated period of 3 months”.
According to Lier Chemical, the production integration will change the company's glufosinate-ammonium production method, which is expected to significantly reduce production costs. The glufosinate-ammonium production line of Guang'an Lier before 2018 was based on the traditional mainstream Strecker process. The production suspension and integration this time is expected to realize the production of part or all glufosinate-ammonium based on MDP intermediate. Reportedly, the production cost of the new process is far lower than that of the Strecker process. It can significantly increase the company's profit margin of glufosinate-ammonium.
Suspension of production to adversely affect Lier Chemical's short-term operating performance
It is expected to have a short-term adverse impact on the company's operations. A total reduction of the consolidated net profit of about 1.7 million from Q4 2019 to Q1 2020 would be the result if the production is suspended for 3 months. This is based on the total net profit of USD4.9 million in the first three quarters of Guang'an Lier. However, such a production suspension and integration will benefit production and operation in the long run.
The long-term demand for glufosinate-ammonium is increasing. The new production method would help Lier Chemical to win in the price war. Among mainstream herbicides, paraquat and glyphosate, respectively, have a gradually shrinking global share due to toxicity issues, while glufosinate-ammonium has relatively low toxicity. Additionally, it can be mixed with glyphosate to solve the problem of crops’ resistance. All this results in gradually increasing market demand. In recent years, many production lines of glufosinate-ammonium have been put into operation, and the price has dropped significantly. The current price of glufosinate-ammonium has fallen to around USD 15,547/t, which is close to the full cost of the mainstream process (Strecker). This is a stage of fierce price competition.
In this context, the new process based on self-produced MDP is expected to enable Lier Chemical to get production cost advantage of glufosinate-ammonium. It will help the company to stand out in the price war, consolidate the company's leading position, and expand the company's market share.
Glufosinate-ammonium price rebounds, optimistic attitude towards price increase
Since November 2018, the domestic price of glufosinate-ammonium has declined by 43%, from USD26,501/t to USD15,053/t, due to the operation of new production lines. It is expected that at Lier Chemical, the net profit would fall by 30-60% year on year in 2019.
However, in early December 2019, a glufosinate-ammonium intermediate production company in Hubei Province suspended production for environmental treatment in the industrial park, causing some glufosinate-ammonium companies to limit and even suspend production. In mid-December, the supply of glufosinate-ammonium showed tightness. Now Guang'an Lier also announced the suspension of production. That is to say, the supply of glufosinate will further decrease in the near future. Hence, the price of glufosinate-ammonium would continue to rebound.
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