The pesticide industry has declined to a certain degree over the last two years and there has been a widespread problem of overcapacity, both at home and abroad, where pesticide enterprises have been running only at 50 percent capacity.
 
Due to the downturn in the pesticide industry, enterprises would not want to hold stocks, resulting in a drastic reduction of inventories. There has been some destocking by suppliers, while the inventory level in the trading market is in general still on the higher side.
 
In the meantime, China is exerting a multiple-perspective supply-side control to speed up the reduction of production capacity, as such that the prosperity of the pesticide industry can be retrieved. In addition to that, the Chinese central government is strongly promoting the implementation of environmental policies. 
 
Pesticide enterprises, which failed to comply with the regulatory compliance requirement, were shut down one after another in the first quarter. On the other hand, the second and the third quarter will be busy seasons for the pesticide market.
 
When the supply side is placed under control, whilst demand side is growing, pesticide prices may rebound. Beginning from July 1, VAT in the pesticide industry will be reduced down to 11 percent, which will lead to a further increase in industry profitability.

 
 
Accelerated growth of operating income 
 
In the first quarter of 2017, public companies in the pesticide industry achieved a total operating income of Yuan20.831 billion, 34.4 percent up year-on-year; operating profit of Yuan1.879 billion, 70 percent up year-on-year; and net profit attributable to shareholders of Yuan1.52 billion, 64.1 percent up year-on-year. 
 
The operating income, operating profit and net profit growth rate all reached the highest levels over recent years, which benefited from the continued recovery in the industry, an improved supply-demand structure, increased sales of public companies, and resumption or growth in the prices of products. 
 
In terms of individual companies, only two out of the pesticide public companies (23 samples companies) suffered a decline in operating income: Lianhetech dropped 8.5 percent, mainly due to its pesticide business still being in recovery; Jiangshan Agrochemical dropped 27 percent, mainly due to its reduced trade income. The other 21 companies all achieved sales growth, of which Huifeng Agrochemical, ABA Chemical, Red Sun, Flag Chemical and Sanonda were ranked among the top five, having respectively achieved growth of 312.4 percent, 103.8 percent, 59.1 percent, 42.5 percent and 37.2 percent.
 
Significant growth in net profit
 
The gross profit of pesticide public companies in the first quarter of 2017 decreased 0.7 percent year-on-year, down to 20.7 percent, mainly due to a recovery in the prices of raw materials from the bottom, where raising the unit price of products of some enterprises lagged behind. Another reason is that the gross profit of non-pesticide businesses of some enterprises decreased. 
 
In the first quarter of 2017, 18 enterprises out of the 23 sample companies achieved growth; one stopped losses (Wynca); one reduced losses (Gofar); and three decreased year-on-year (Huapont Life Sciences, Lianhetech and Lanfeng Biochemical). In general, the net profit increased 1.3 percent year-on-year, up to 7.3 percent. The prices of the pesticide technical rose significantly in the first quarter before the advent of the spring high season. The export side was also good; downstream enterprises were active in making replenishments. The sales volume of enterprises increased and profits also increased significantly.