Rainbow: pesticides demand began to recover in major global market since Sept. 2023

On 31 Oct.,2023, Weifang Rainbow Chemical Co., Ltd. (Weifang Rainbow) released an investor relations activity record, responding to and discussing the currentstate of the agrochemical industry.

Exports of pesticides dropped YoY in2023 and rebounded in September

WeifangRainbow stated that according to the General Administration of Customs, fromJan. to Sept. 2023, the total export value in US dollars and export volume ofproducts under 35 HS codes (including common pesticides and other chemicals)decreased by 31.1% and 6.9% respectively year on year.

Specifically,the export value in US dollars of products under the HS code 3808, which areprimarily pesticide formulations, dropped by 35.6% YoY while the export volumeincreased by 3.0% YoY. It showed that the export volume of pesticideformulations increased YoY. This upward trend was more obvious in Septemberwhen the export value dropped by 9.5% YoY and the export volume increased by55.5%. The average export price of products under customs code 3808 has beendeclining month by month from USD4.44/kg in Jan. 2023 to USD2.96/kg in August,with a slight increase to USD3.02/kg in September.

Based oncustoms data in Sept. 2023, the rigid demand for agrochemical products remainsas usual. The overall market demand has largely returned to normal. However,the average export price is at a historically low level, indicating that thecompetition in price has been fierce and the low market price is still in aprolonged period as the supply side is struggling with overcapacity. Fromcustoms data by destination from Jan. to Sept. in 2023, the export value tomajor agrochemical markets decreased more significantly. Specifically, theexport value to Brazil, the United States, and Australia dropped by 60%, 61%,and 44% respectively year on year.

Even though,there were still export destinations contributing YoY rising export value. Theywere mainly countries in Africa, such as Ghana, Cameroon, Ivory Coast, Kenya,Egypt, Tanzania, and Ethiopia. This shows that the growth potential in emergingmarkets is worthy of our attention.

According tofeedback from various markets, apart from the United States, where inventorylevels remain high, other key markets of agrochemicals such as Brazil,Argentina, and Australia have inventories at reasonable levels. There isvariation among different types of products, with some having high inventoriesand others low.

Currently, invarious end markets, prices for homogenized products with fierce competitionare historically low, while prices for products with less competition or havefew homogenized registrations remain at profitable levels.

Most pesticide varieties are expectedto maintain low prices for the next 2-3 years.

According to WeifangRainbow, since most of the current major manufacturers of pesticide TC are stronglegal producers, high capacity is bound to continue for quite a long time, aggravatingthe severe overcapacity of pesticide TC. The main drivers of price increasesfor pesticide TC products will be manufacturers’ forming alliances to push upprices or continuous increases in raw material costs. However, for mostpesticide TC products, prices will remain at the bottom under viciouscompetition for the coming 2-3 years.

About Weifang Rainbow's businessdevelopment plans in the United States and Canada

WeifangRainbow stated that as in other countries, it would also invest in building arapid market entry platform in the US and Canada. The company has fullylaunched its product selection and registration process in these two countries,with the registration period in both countries being approximately 2-2.5 years.

Given theUnited States' 25% special import tariff on agrochemical formulations importedfrom China, Weifang Rainbow is in negotiations and research for purchasing orestablishing formulation processing plants in the United States.

Strategy to address fluctuations in theRenminbi (CNY) exchange rate

WeifangRainbow has always been locking in an exchange rate for a large proportionpreviously. It was a good measure if the forward rate of RMB is expected to devalue.The company adopted the same strategy in Q4 2022 and Q1 2023.

Consideringthe appreciation expectation for the RMB forward exchange rate, the company hassignificantly reduced the proportion of locking in exchange rate. The companywill continue to adjust the proportion in a timely manner according toforecasts and trends in forward exchange rate fluctuations.