The military conflict phase in Iran began on February 28th, and on March 1st, Iran officially blocked the Strait of Hormuz, prompting several major shipping companies to suspend transit through the strait. The US-Israel-Iran conflict has ignited a surge in commodity prices. Crude oil rose over 20% in three trading sessions, while natural gas soared by 80%. Chemical futures like methanol, plastics, and ethylene glycol experienced consecutive days of limit-up gains. The fertilizer supply chain is under particular scrutiny. The Middle East is a core global supplier of fertilizers, including nitrogen, potash, and phosphate fertilizers. For instance, data shows the Middle East accounts for over 30% of global urea exports, with Iran being the second-largest exporter, shipping approximately 9 million tons annually, about 10% of the global total. Furthermore, the Strait of Hormuz handles over 30% of global seaborne trade for fertilizers and their raw materials. Its blockade directly causes a supply crisis due to transport disruptions. Amid this "supply disruption" crisis triggered by the conflict, the global fertilizer supply chain is undergoing a transformation, presenting a historic development opportunity for industry leader CHINA XLX FERT (01866).
Firstly, fertilizer prices are expected to rise. On the supply side, capacity has plummeted. Iranian urea and ammonia plants face shutdowns due to war risks, and Egypt might also halt production due to spillover effects, potentially disrupting over 20% of global urea capacity. On the other hand, the uncertain duration of the Strait of Hormuz blockade means even unaffected capacity cannot circulate normally. A severe supply-demand imbalance has emerged. With the conflict escalating and a near-term peace agreement unlikely, fertilizer prices are expected to continue rising, mirroring the pattern seen during the Russia-Ukraine war.
Secondly, demand dynamics point to higher volume and prices for domestic fertilizers post-spring ploughing. Iran's urea is primarily sold to major agricultural nations like Brazil, Turkey, and India. If Iranian supply is disrupted, these markets will need to find new import sources. China is also a major fertilizer producer, but its exports are strictly managed by quotas. During the spring ploughing season, priority is given to ensuring domestic supply and price stability, so significant price fluctuations are unlikely. However, with soaring international prices and converging demand, export policies and guided prices are expected to loosen after the spring ploughing season, creating expectations of higher overseas volume and prices for Chinese urea producers.
The combination of "production halts + logistics blockade" directly creates a "hard deficit" on the supply side, while the spring ploughing peak affects demand, creating a "substitution gap" in neighboring countries. A rise in fertilizer prices seems inevitable, and CHINA XLX FERT is positioned to be a primary beneficiary. CHINA XLX FERT is a leading urea enterprise in China with top-tier single-plant scale and per-unit product profitability. It is the domestic nitrogen fertilizer leader, ranking first in national urea output, with its compound fertilizer production and sales also in the industry's top tier. In 2024, the company's urea capacity was 3.9 million tons, and compound fertilizer sales were approximately 2.3 million tons. In the first three quarters of 2025, these two products contributed 25.3% and 58% of revenue, respectively, totaling over 50%. The company operates three major production bases in Xinxiang (Henan), Jiujiang (Jiangxi), and Manas (Xinjiang) for producing and selling urea, compound fertilizer, methanol, dimethyl ether, and DMF. A smaller compound fertilizer base in Huludao (Liaoning) has commenced its first phase. Ongoing projects include the Xinxiang base (570,000 tons synthetic ammonia), the Zhundong project in Xinjiang (160,000 tons melamine, 500,000 tons high-efficiency compound fertilizer), and the Guigang project in Guangxi (1.2 million tons synthetic ammonia, 950,000 tons high-efficiency nitrogen fertilizer, 650,000 tons urea, 1 million tons high-efficiency and water-soluble fertilizer).
Additionally, CHINA XLX FERT strongly emphasizes technological innovation, having established advanced R&D platforms and systems. It masters advanced coal gasification technology and hosts research platforms like the China Nitrogen Fertilizer Industry (XLX) Technology Research Center, the Integrated Water-Fertilizer Research Center, and a nationally accredited laboratory. It was recognized as the "Synthetic Ammonia Energy Efficiency Benchmark Enterprise" by the Ministry of Industry and Information Technology and the China Petroleum and Chemical Industry Federation for thirteen consecutive years (2011-2023). Through active R&D and differentiated products, the company continually strengthens its leading position. In overseas markets, it has successfully expanded into new territories like South Korea and Mozambique, effectively boosting export growth. As the Middle East situation evolves, the company is poised to leverage its leadership, capacity, product technology, and first-mover advantages in international markets to swiftly capture market opportunities and build a growth trajectory overseas.
It is worth noting that CHINA XLX FERT has diversified its business in recent years, with the chemical segment's revenue share steadily increasing. Its chemical products primarily include methanol, dimethyl ether, melamine, and liquid ammonia. Methanol is the core product, with a capacity of 1.08 million tons in 2024. Sales and revenue have maintained double-digit growth in recent years. In the first three quarters of 2025, methanol contributed 36.7% of the chemical segment's revenue and 14.1% of total revenue, showing an upward trend. The conflict's most direct impact is on chemical product prices, especially methanol. After two limit-up sessions, methanol futures rose significantly again on the third trading day, accumulating nearly a 20% gain. Iran is a key global exporter, and approximately 60% of China's methanol imports come from Iran. Expectations of supply disruption may trigger a buying spree. CHINA XLX FERT has long-term partnerships with core clients like PetroChina and Sinopec. With methanol sales maintaining high growth in 2025, and amid substantial price increases, product revenue and profit are expected to achieve significant double-digit growth in Q1 2026.
From an investment bank perspective, analyses, such as one from Huatai Securities, suggest that as Iran is a significant global supplier of urea and methanol, a prolonged conflict could disrupt its natural gas supply. Reduced gas-based chemical feedstocks might lead to localized global shortages of urea and methanol. Domestic producers with strong cost-reduction and capacity-expansion capabilities, exposure to natural gas business growth, large urea capacity, and significant methanol sales volumes are likely to benefit. The current Middle East situation provides CHINA XLX FERT with predictable short-term performance increments, accelerating earnings growth. However, the company focuses on long-term development. Between 2016 and 2024, its revenue grew from RMB 5.711 billion to RMB 23.128 billion, a CAGR of 19.1%, while shareholder net profit increased from RMB 30 million to RMB 1.459 billion, a CAGR of 62.5%. Although 2025 was affected by urea plant maintenance, revenue maintained a growth trend, with a return to double-digit growth anticipated in 2026. The company actively rewards shareholders, increasing share buybacks since the second half of last year, with cumulative repurchases reaching HKD 71 million by January 23rd this year. It also pays dividends annually, with cumulative dividends from 2016-2024 totaling RMB 1.87 billion, representing a payout ratio of 21.8%. This robust fundamental performance combined with shareholder returns has garnered investor recognition. Over the mentioned period, the company's market capitalization increased over tenfold, delivering substantial returns for long-term investors. Since the beginning of this year, its market cap has risen over 25%. With the "Middle East situation" boosting earnings expectations, its future prospects remain elevated.
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