The export of fertilizer is forecast to abruptly slump just as production is increased under new policies to tighten regulation of the highly energy-dependent sector.

In a move to slash exports and feed domestic demand, the government more than doubled the tariff on exports of carbamide to almost 500 yuan (US$60) per ton from June 1, following the 260 yuan (US$31) per ton tariff in place since the beginning of the year.

Carbamide exporters must pay 30 per cent of the total export value in tax. Based on the current average carbamide price of 1,600 yuan (US$193) per ton, the tariff amounts to 480 yuan (US$58) per ton, Pan Derun, vice-chairman of China Petroleum and Chemical Industry Association (CPCIA) told China Daily in an exclusive interview during a petrochemical conference that ended yesterday in Beijing.

From the start of November until the end of the year the export taxation will be cut by half to 15 per cent.

On the production front, the government will scrap the previous value-added tax of 13 per cent at the beginning of next month, in an effort to boost domestic output.

Industry analysts said the frequent tariff adjustments are intended primarily to guarantee the domestic supply when demand for fertilizer peaks during the farming season.

The export tariff hike introduced this month has slowed carbamide exports.

Sinochem Fertilizer Corp, a major fertilizer exporter, yesterday said it will duck out of the carbamide export business following the news.

"The more than doubled taxation as well as the falling fertilizer price on the international market has made the profits in the (carbamide export) business marginalized," Duan Changsheng, general manager of the trade development department under Sinochem Fertilizer told China Daily in a telephone interview.

Duan said his company will increase fertilizer supply to the domestic market, which is being driven forward by policies promoting the agricultural sector.

"The 260 yuan (US$31) per ton export taxation since the year began has to a great extent cut down the carbamide exports, not mentioning the more than doubled tariff," Duan added.

Statistics from Tianjin Customs show carbamide exports at the port plummeted by 96 per cent to 533 tons in the first five months of the year, compared to 2,000 tons per month last November and December, before the new tax was introduced.

But the sharp fall in exports is not expected to deal a heavy blow to the country's carbamide producers, as it accounts for only a small portion of production, said Pan from CPCIA.

Last year China exported 3.9 million tons of carbamide, with production standing at some 41 million tons.

Zhao Xianbing, an industry analyst at Shanghai-based China Securities, said exemption from the value-added tax on carbamide production will boost output.

"Fertilizer producers will benefit from the increased business returns because of the tax removal, as the government has controlled the fertilizer price at a fixed level to protect the farmers' interests," Zhao said.

(China Daily June 16, 2005)