Yellow Phosphorus Enterprises in Yunnan Subject to Production Curtailment or Suspensions from September 2022 to May 2023, Long-Term Fundamentals Remain Bullish

SHANGHAI, Sep 29 (SMM) - In compliance with the Energy Efficiency Management Plan for Energy Consumption Industries from September 2022 to May 2023 formulated by relevant departments of Yunnan Province, yellow phosphorus enterprises in Yunnan shall reduce or stop their production in an all-round way from 0:00 on September 26. As of September 28, the daily output of yellow phosphorus in Yunnan was 805 mt, a decrease of about 580 mt or 41.87% from mid-September. Industry insiders said that due to the approaching dry season, Guizhou and Sichuan may also introduce relevant energy consumption and production restrictions, which will further reduce the production of yellow phosphorus.

In the past two days, the price of yellow phosphorus has soared 1,500-2,000 yuan/mt to 3,800 yuan/mt. Up to now, the operating rate of yellow phosphorus enterprises in Yunnan has dropped to around 41%, down 28 percentage points from mid-September. Last weekend, the operating rate of yellow phosphorus enterprises in Yunnan was around 66%, beating those in the two other production hubs (Sichuan and Guizhou). In just a few days, the operating rate in Yunnan has dropped by 25 percentage points, and the supply has declined more than 40%.

The main reason for the production curtailment of yellow phosphorus is its excessively high energy consumption. It requires more than 10 mt of phosphate ore to produce just 1 mt of yellow phosphorus, and electric furnaces must be heated up to a temperature of 1400~1500℃ in the production process, which requires 13,000-15,000 kwh of electricity.   

At present, yellow phosphorus enterprises have virtually no inventory, with producers and traders reluctant to sell in anticpation of higher prices after the National Day.

East Asia Qianhai Securities believes that this round of yellow phosphorus price rise is mainly driven by supply shock and growing demand. On the supply side, the power rationing policy in mid-to-late August led to the almost complete shutdown of yellow phosphorus plants in Sichuan. In addition, higher hydropower costs in the dry season of autumn and winter has also tightened supply. In terms of demand, September is the peak season for the downstream sectors of yellow phosphorus, driving the demand for yellow phosphorus to increase. In the long run, the supply of yellow phosphorus will have limited room to grow, while rising glyphosate demand will boost the demand for yellow phosphorus.