Since late October this year, the yellow phosphorus market has experienced a significant and sustained price increase, marking a rare bullish trend in recent years. The ex-factory price has now surpassed 14,000 yuan per ton, rising over 3,000 yuan in just 20 days. This sharp rebound has rekindled interest among many previously idle producers who are now eager to resume operations.
For years, the yellow phosphorus industry has struggled with sluggish demand due to its status as a key product under national energy-saving and emission reduction policies. After briefly hitting 20,000 yuan in early 2004, prices fell sharply and have since been in a prolonged downturn, dropping below 10,000 yuan. This has led to two consecutive years of major losses across the industry, forcing many companies to shut down or reduce production. Currently, the operating rate of the industry is below 50%.
The root cause of this downturn lies in overcapacity and high production costs. China's yellow phosphorus production capacity is nearly 1.6 million tons annually, accounting for 68% of global capacity, but domestic demand remains only around 800,000 tons. With yellow phosphorus being a non-renewable resource, the government has implemented measures such as a 20% export tariff to curb uncontrolled exports and limit production. However, the ex-factory price has remained below the cost of production—around 11,000 yuan per ton—for more than two years, leading to widespread losses. Only a few firms with private power plants or hydropower advantages can remain profitable, while most continue to struggle.
This year’s overall losses in the industry are almost certain. However, since late October, the market has shown signs of recovery, driven by three main factors.
First, the "year-end effect" has boosted demand. Downstream users typically stock up on raw materials before winter, partly due to seasonal challenges such as dry weather limiting hydropower-based production and heavy snow affecting transportation. These factors have led to increased buying activity, pushing prices higher.
Second, policy support has played a role. New regulations in major production areas, such as Yunnan's plan to phase out outdated production lines, have created expectations of tighter supply and higher prices. These measures have reinforced market confidence and contributed to the price surge.
Third, a market correction has occurred. After years of losses, many producers are under financial pressure, creating an inherent need for price increases. Similar to the stock market, a rebound is natural after a prolonged decline.
Despite the recent rally, the outlook for the yellow phosphorus market remains uncertain. Neither the production nor consumption sectors show signs of a full recovery. Overcapacity and structural issues persist, with over 130 production companies spread across regions like Yunnan, Guizhou, Sichuan, and Hubei. Most of these facilities are outdated, small-scale, and inefficient, contributing to high pollution and resource consumption.
Moreover, downstream industries such as phosphates and pesticides face limited ability to absorb higher prices. Export tax rebates for key products like sodium tripolyphosphate and phosphoric acid have been reduced, increasing cost pressures. Current prices for yellow phosphorus, soda ash, and white coal are already straining production margins, making it difficult for downstream businesses to sustain profitability.
Industry insiders are not overly optimistic about the current price rebound. Many believe the recent surge may be short-lived, with some expecting prices to stabilize or even drop once they reach 14,000 yuan. Middlemen holding inventory may push for higher prices before the end of the year, but increased production from resuming factories in Sichuan and Hubei could soon flood the market, putting downward pressure on prices.
There is also concern that rising prices may slow down efforts to eliminate outdated production capacity. If nearly half of the currently idle capacity resumes operations, it could lead to a new oversupply crisis, further destabilizing the market. For now, the industry remains cautious, aware that the long-term path to recovery will require deeper structural reforms and better demand management.
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