HK Stock Movers | Fertilizer Stocks Rally as World’s Largest Fertilizer Company Posts Q1 Net Profit Surge of ~10x Year-on-Year

Gelonghui, May 4: Sinochem Fertilizer and China Heartland Chemical rose over 4%, while CNOOC Chemical gained nearly 3%. After market close on Monday, Nutrien—the world’s largest fertilizer company—released its Q1 earnings report. Benefiting from soaring fertilizer prices, Nutrien posted a record Q1 net profit of USD 1.39 billion (USD 2.49 per share), compared to USD 133 million (USD 0.22 per share) in the same period last year—a roughly tenfold year-on-year increase. Additionally, Russian President Vladimir Putin instructed that Russia’s export restrictions on fertilizers be extended through August 31, with further extension under consideration.

How should we view the chemical sector’s performance in September? Which individual stocks are worth watching?

From a cyclical perspective, the chemical industry’s prosperity manifests at three levels: low-level cyclicity stems from seasonal shifts between peak and off-peak demand; mid-level cyclicity arises from supply-demand mismatches in production capacity; and high-level cyclicity emerges when supply is tightly constrained while demand receives structural impetus from emerging industries. I. Key Subsectors 1) Phosphorus Chemicals Phosphorus chemicals have re-entered an attractive valuation range. ① Bayer wrote to customers indicating that critical raw material shortages will cause significant output declines; repairs for this production line are expected to take approximately three months, likely triggering a sharp rise in glyphosate prices. ② Fertilizer prices remain remarkably resilient even during the off-season, suggesting potential further upside ahead of the spring planting season. ③ Export restrictions on fertilizers have widened the price gap between domestic and international markets: for potassium chloride, the gap stands at ~0–100 RMB/ton; for urea, ~1,200–1,300 RMB/ton; and for monoammonium phosphate (MAP), ~2,300–2,400 RMB/ton. Market expectations hold that export restrictions may be lifted after the spring planting season, thereby extending the agricultural chemicals sector’s cyclical upswing. After a three-month correction, phosphorus chemicals have now returned to an attractive valuation range. 2) Coal-based Chemicals As crude oil prices surge, coal-based chemicals become increasingly cost-competitive. With European carbon prices breaching EUR 95/ton, the dual-carbon policy agenda remains firmly in place. Moreover, the pre-holiday policy exempting feedstock energy consumption from dual-control energy intensity targets provides regulatory relief for companies previously unable to secure project approvals due to energy-consumption constraints. 3) Agricultural Chemicals On January 15, the Tonga archipelago’s undersea volcano erupted continuously, triggering tsunamis. This eruption reached Volcanic Explosivity Index (VEI) level 6, releasing massive amounts of sulfur dioxide and volcanic ash into the atmosphere—reducing atmospheric transparency, diminishing solar irradiance, and lowering Earth’s surface temperatures. This eruption could trigger global climate anomalies and crop yield reductions, tightening supply-demand fundamentals across the agrochemical sector. Meanwhile, the Russia-Ukraine conflict shows no signs of early resolution, exerting continued downward pressure on agricultural commodity prices. II. Investment Opportunities 1) Recovery Plays ① Shipping Disruption Recovery: Export-oriented companies stand to benefit from improved shipping conditions and a subsequent rebound in earnings. ② Falling Raw Material Costs: Companies previously hurt by high raw material costs will benefit from lower input prices in the latter half of the inventory cycle. ③ Auto Sector Recovery: Industries whose profits were pressured by year-on-year declines in passenger vehicle and commercial truck sales are poised for sequential improvement and cyclical recovery in 2022.

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