Under the Middle East crisis, Chinese fertilizer demand improves in the short term while sulfur supply becomes the core risk

Overview

This report is part of Goldman Sachs China Track, focusing on the impact of the Middle East crisis on the Chinese fertilizer industry’s supply chain, demand, and operations. It surveys four domestic fertilizer companies across nitrogen, phosphate, potash, compound fertilizers, and fertilizer distribution. The overall conclusion is that short-term demand improved as domestic farmers restocked early, and company operations remain largely normal; however, if the Middle East conflict continues, disruption of sulfur supply and higher procurement costs will become the main pressures for phosphate and compound fertilizer companies.

Core views

First, the demand side is mildly positive in the short term: most firms have limited direct sales exposure to the Middle East, and domestic farmers are increasing safety inventory due to supply uncertainty and expectations of higher prices, which is supporting order improvement. Second, the export side remains constrained by policy: key fertilizer products are still export-paused to prioritize spring-ploughing domestic supply, and some firms expect export controls to ease if the situation stabilizes after the spring planting period. Third, cost pressure is concentrated in sulfur: sulfur is a key input for phosphate fertilizer production, and blocked logistics from the Middle East, import dependence, and declining port inventories are creating post-2Q26 supply and pricing risks for the industry. Fourth, alternatives are being accelerated: firms are exploring industrial sulfuric acid, sulfur-bearing iron ore, and sulfur recovery from phosphogypsum, but substitutes are constrained by processing costs, quality, and environmental approval requirements.

Analysis framework

The report uses a channel-survey approach, interviewing four Chinese fertilizer-related enterprises and organizing findings across demand and orders, operating status, export restrictions, raw material supply, and substitute sourcing. It also cross-validates with price charts, inventory data, and management commentary on urea, phosphate fertilizer, potash, sulfur, and coal-chemistry products.

Methodology notes

• Channel researchChinese corporate interview tracking

  Use management feedback from companies to assess industry supply-demand and operating conditions

  The core evidence in this report comes from interviews with four domestic fertilizer companies covering nitrogen, phosphate, potash, compound fertilizers, and distribution segments.

• Supply-demand analysisDemand, inventory and export-restriction tracking

  Judge short-term supply-demand using farm-household restocking, company orders, port inventories, and export quotas

  The report focuses on farm-household safety inventories, spring-ploughing supply-preservation export pauses, urea inventories, and sulfur port inventories to assess short-term demand improvement and potential bottlenecks.

• Cost and substitution analysisSulfur supply-chain stress test

  Evaluate phosphate-cost risk through sulfur prices and inventory-buffer duration

  The report uses an estimated sulfur inventory buffer of 1–2 months, import dependence, Strait of Hormuz transport bottlenecks, and the economic threshold for sulfur recovery from phosphogypsum as key judgment references.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chinese phosphate fertilizer producers

  directly affected by sulfur supply and prices

  Strengths

  Short-term domestic sales trends improved, and some firms maintained high-load or full-load operations; low-cost government sulfur supply provided a buffer during spring ploughing.

  Weaknesses

  Sulfur is import-dependent, with part of it coming from the Middle East, and the duration of low-cost inventories is limited.

  Comparison

  Compared with urea, phosphate fertilizer prices are more sensitive to sulfur costs, making cost pressure more pronounced.

  Risks

  Prolonged Middle East conflict, transport disruption through the Strait of Hormuz, high-cost procurement after inventory depletion, and substitute sulfuric acid approvals and quality issues.

• Urea and coal-based chemical companies

  benefit from rising global oil and gas prices and improving domestic demand

  Strengths

  Coal-based production has cost competitiveness in a high oil and gas environment, and products such as urea, methanol, and melamine can continue high-load operation.

  Weaknesses

  Export policy may still restrict external demand release, while domestic price increases lag gains in some global products.

  Comparison

  Compared with phosphate fertilizer, urea has lower sulfur risk exposure and a clearer short-term benefit.

  Risks

  Persistent export controls, rising coal costs, and potential pull-forward demand that later reverses.

• Potash import and distribution

  affected by global supply and domestic resource constraints

  Strengths

  Current import sources mainly include Russia, Belarus, and Canada, and interviewed firms said short-term disruption is limited.

  Weaknesses

  Long-term domestic potash depletion may increase import dependence, which is already at 60–70%.

  Comparison

  Compared with sulfur, potash supply is more stable in the short term, but long-term resource security issues are more prominent.

  Risks

  Rising import dependence, international logistics or geopolitical disturbances, and domestic resource exhaustion.

• Sulfur and sulfuric-acid substitute supply chain

  key raw materials and risk transmission hub for the fertilizer industry

  Strengths

  Alternative sources such as smelter sulfuric acid, sulfur-bearing iron ore, and sulfur recovery from phosphogypsum provide options, and high sulfur prices improve substitute economics.

  Weaknesses

  Alternative options face processing cost, quality stability, environmental impact, and energy-approval constraints.

  Comparison

  Current sulfur prices are far above the economic threshold for substitutes, making substitute pathways more attractive.

  Risks

  Substitute capacity ramp-up is slow, approval delays, quality non-compliance, and rising environmental costs.

Key data

• Interview coverage4 domestic fertilizer companiesCovers nitrogen fertilizer, phosphate fertilizer, potash fertilizer, compound fertilizer, and fertilizer distribution.
• Historical export shareSome companies have fertilizer export shares of 10–15%, 7%, or below 5%Most interviewed firms said they had limited direct sales exposure to the Middle East.
• Historical impact on Chinese exportsUrea is equivalent to 2–11% of overseas markets, phosphate fertilizer to 9–20%The report says China’s annual exports of urea and phosphate fertilizer previously had a meaningful supply impact on overseas markets.
• Sulfur inventory buffer1–2 monthsSeveral companies expect their low-cost sulfur inventories to be depleted within 1–2 months.
• China’s sulfur import dependenceAbout 45% depends on imports, with about 10% from IranDomestic sulfur production also depends on refining, which is indirectly affected by imported oil products.
• Sulfur port inventories1.5–1.6 million tonsRecent inventories appear sufficient for about one month of domestic demand, below the 2025 average of 2.2 million tons.
• Spot sulfur priceRMB6,200/tonThe report notes that current spot prices are significantly above the economic threshold for alternative options it evaluated.
• Phosphogypsum recovery economics thresholdSulfur at RMB2,500–2,800/ton, or sulfuric acid above RMB900/tonAbove this range, recovered sulfuric acid becomes more economic, but energy consumption approvals are still required.
• Potential urea exports7.0–8.0 million tonsOne company estimated urea exports could reach this level if export limits ease and the Middle East situation improves after the spring planting season.
• Coal-chemistry price changesUp 37–71% from pre-crisis levelsManagement said coal-chemistry prices are rising faster than coal costs, and methanol, ammonia, melamine, and POM currently have no export limits.

Impact & implications

For investment implications, fertilizer companies may benefit in the near term from pulled-forward domestic demand, farm-household restocking, and some product price rises, but profit sensitivity depends on whether raw-material cost increases can be passed through. Phosphate and compound fertilizer firms are most sensitive to sulfur; if the Middle East conflict persists, high-price spot procurement and supply uncertainty will likely emerge after low-cost inventories are used up. Urea and coal-based chemical firms are relatively better positioned due to cost competitiveness in a high oil and gas price environment. Industry focus should shift from demand improvement alone to the sustainability of sulfur imports, port inventory, export policy, and substitute sulfuric acid sourcing.

Risks

• If the Middle East conflict extends into 2Q26, sulfur supply and pricing risks may rise significantly.
• Closure or transport disruption in the Strait of Hormuz may affect delivery of long-term contract sulfur from the Middle East.
• Low-cost sulfur inventories can only last 1–2 months, after which firms may need to purchase at high spot prices.
• If export controls persist, the benefit of rising global prices to domestic companies’ revenue leverage may not be fully realized.
• Substitute sulfuric acid sources are constrained by cost, quality, environmental impacts, and energy approvals, so they cannot fully eliminate supply risk.
• Demand improvement from farm-household restocking may simply be forward-shifted demand, with pull-forward risk of a later rebound-down.

What to watch

• Whether Chinese fertilizer export controls relax after the spring planting period, especially urea and phosphate fertilizer export quotas.
• Whether the Middle East situation and Strait of Hormuz shipping recover, affecting long-term contract sulfur deliveries.
• Whether Chinese sulfur port inventories remain below the 2025 average.
• Whether spot sulfur prices stay above RMB2,500–2,800/ton, thereby supporting the economics of sulfuric acid recovery projects.
• Whether government-distributed low-cost sulfur remains available after the spring-ploughing season and whether coverage is expanded.
• Domestic and global spread changes for urea, DAP, MAP, potash, and sulfur.
• Whether coal-chemistry product prices continue to stay above cost inflation while export remains unrestricted.