According to the Zhitong Finance APP, Dongfang Securities released a research report stating that since the beginning of this year, China's pesticide formulation export volume has significantly increased year-on-year. The market mainly believes that this is driven by replenishment demand after destocking from a cyclical perspective. However, the firm believes that a more core driver is the structural changes in the end market, which contain structural opportunities for Chinese companies to reshape the global agrochemical value chain. From a structural perspective, the firm continues to be optimistic about RAINBOW CHEMICAL (301035.SZ, Buy); from a cyclical perspective, the firm is also optimistic about the profit improvement opportunities brought by the recovery of major representative raw material categories, focusing on Yangnong Chemical (600486.SH, Overweight), Xingfa Chem (600141.SH, Buy), Xin'an Shares (600596.SH, Not Rated), and Li Chemical (002258.SZ, Not Rated).
<h2>The main viewpoints of Dongfang Securities are as follows:</h2>
The cyclical factors of completed destocking and demand improvement are just the foundation
The global agrochemical industry chain has basically completed a destocking cycle of more than two years, showing potential for bottom recovery. Especially as the largest agrochemical market country in the world, Brazil's demand recovery will bring significant marginal boosts. In the 23/24 planting year, Brazil's crop yield was affected by extreme weather such as local droughts and floods, coupled with falling grain prices, leading to a decline in farmers' income expectations, which suppressed agricultural material procurement and cash payment willingness, worsening demand that also transmitted to upstream channels and factories. However, since the beginning of this year, with the improvement of weather conditions in Brazil and the continuous increase in long-cycle planting areas, Brazil's National Supply Company (CONAB) has repeatedly raised its production expectations for Brazilian soybeans and corn for the 24/25 year, with expected year-on-year production increases of about 15%. At the same time, the settlement prices of CBOT grain futures have stabilized during this year's sales season, improving farmers' income expectations and driving the recovery of demand across various links in the industry chain. The lifting of demand suppression has driven the year-on-year growth of China's pesticide formulation export volume and the oversold recovery of some raw material prices under the previous weak supply and demand background. However, the firm believes that the increase in formulation export volume also has deeper factors, stemming from the iteration of the end market structure.
The increase in market share of non-traditional multinational players and the structural factors of direct procurement of Chinese formulations are more important
Taking the Brazilian market as an example, on one hand, its pesticide market value accounts for nearly 20% of the global total, and on the other hand, the export volume of China's pesticide formulations to Brazil has also reached nearly 20% of total exports in recent years, making it highly representative. Participants in the Brazilian pesticide market can be mainly divided into two categories: one is traditional leading multinational companies, including Syngenta, Bayer, BASF, etc.; the other is large and medium-sized local companies, distributors, and other multinational companies. These two types of entities serve as direct importers in the Brazilian market, connecting with the downstream distribution system. A significant change in the Brazilian market in recent years is that the import share of traditional multinational companies (which primarily imported raw materials and were the main customers of Chinese pesticide companies) has decreased from 80% to 70%, while the share of the second category of entities has been continuously increasing, with these entities primarily importing pesticide formulations. In addition, many distributors and cooperatives in Brazil, which previously had no import channels and could only purchase cleared goods from local importers, have also turned to self-importing. Represented by Brazil, this trend of changes in the structure of end market procurement entities has driven the increase in the export volume and proportion of China's formulations
Optimistic about the Growth Opportunities of China's Pesticide Formulation Exporting Enterprises
Observing the subtle changes, the shift in the structure of end-market entities also somewhat validates the previous in-depth report by RAINBOW CHEMICAL on the reshaping of the global agrochemical value chain. Local operators hope to break free from the monopoly of traditional multinational companies to independently choose suppliers, and breaking the value bubble under the monopoly structure is also a welcome change for end growers; allowing agrochemical products to return to production materials and enabling farmers to gain more value. Against the backdrop of this reshaping, Chinese enterprises that can quickly meet demand iterations in the end market are expected to seize growth opportunities.
Risk Warning
Risks of fluctuations in raw material and product prices; risks of fluctuations in grain prices and weather uncertainties; risks of uncertainties in overseas operations

600141

301035

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Dongfang Securities released a research report indicating that the export volume of pesticide formulations has significantly increased, mainly driven by changes in the structure of the end market. The firm is optimistic about investment opportunities in RAINBOW CHEMICAL, Yangnong Chemical, and Xingfa Chem, believing that there is great potential for recovery in the global agrochemical industry chain, especially as demand improvement in the Brazilian market will drive export growth

Dongfang Securities: Optimistic about structural opportunities for the growth of pesticide formulation exports, focusing on Xingfa Chem and others