Fertilizer International 500 Jan-Feb 2021
31 January 2021
The high stakes phosphate game
“Some believe the phosphates market is fundamentally oversupplied – a fact which could limit price gains for years”
No one in this industry should ever need a reminder that commodity markets are cyclical. The corollary of that is – every once in a while – markets can, and will, abruptly change direction.
But, to paraphrase Kierkegaard, while life is lived forwards, it’s understood backwards. Practically, this means that sea changes in commodity markets are usually only recognised months after they actually occur.
With the focus falling on the phosphates sector, ahead of CRU’s Phosphates 2021 Virtual Conference in March, it is now apparent, with hindsight, that phosphate market fundamentals did shift over the summer of 2020. The year-and-a-half prior to last summer had been a largely bleak period, in terms of phosphate pricing and production economics, particularly for North American producers.
Take the Tampa diammonium phosphate (DAP) price, for example. Having reached a three-year high of $438/t f.o.b. in August 2018, this major benchmark subsequently underwent a sustained 18 month slide. This lasted through the secondhalf 2018 and the whole of 2019, to finally reach a nadir of $265/t in the first week of 2020. This price level marked a 10-year low-point, plumbing depths not seen since the notorious commodity crash of 2008/2009.
How to explain it? Well, oversupply and high import availability in 2019 certainly acted as major triggers for this price decline. While, conversely, it’s been the tightening in the market since mid-2020, by prompting a substantial shift in the supply/ demand balance, that has driven prices higher over the last eight months. The Tampa DAP price, for example, has recovered by more that $110/t since May 2020 to $390/t f.o.b. at the time of writing – and has even been selling at a premium of around $20-50/t above the Indian DAP price.
Last year’s rise in demand and fall in availability has been global in scope, acting across four key phosphate producing and consuming countries. US phosphate imports for the first nine months of 2020 (Q1-Q3) were down 820,000 tonnes, around onethird lower year-on-year (y-o-y). China’s Q1-Q3 phosphate exports, meanwhile, were around 980,000 tonnes lower y-o-y in 2020, equivalent to a 13 percent fall.
Elsewhere, resurgent phosphate demand in Brazil in 2020 boosted its Q1-Q3 imports by almost half a million tonnes, a y-o-y rise of close to 10 percent. India was also on the look-out for more phosphate imports last year, due to a shortfall in domestically-produced DAP. The subcontinent’s DAP production in Q1-Q3 was down by 450,000 tonnes in 2020.
Government intervention in the market has been another factor. North American producer Mosaic firmly believes the catalyst for the current price rally was its successful petitioning of the US government last summer. This move prompted the US Department of Commerce to impose duties on Russian and Moroccan phosphate imports from November (p8).
The introduction of these duties has certainly been a harbinger of change. Their imposition has already prompted dramatic shifts in global phosphate trade flows, as CRU’s phosphates analyst Glen Kurokawa reports:
“Price spreads in the global and North American markets will change as a result. These duty rates are preliminary… [but have] potentially big consequences for the future of US and global phosphate trade – the stakes are big.”
Looking ahead at the chances of further phosphates price recovery, the messages are distinctly mixed.
In the short term, Mosaic expected a $50/t price uplift in 2020’s final quarter. Yet other players are not so optimistic, especially when looking further ahead. Rival producer Nutrien, having written down the value of its US phosphate assets by $760 million in November (p8), believes the phosphates market is fundamentally oversupplied – a fact that could limit the potential for price gains for years to come.
“We have a view that the market has a lot of fundamental oversupply in low-cost jurisdictions around the world,” said Chuck Magro, Nutrien’s president and CEO. “And that supply will only continue to increase.”
Mosaic, however, offered a different perspective. Joc O’Rourke, its president and CEO, said: “It is very difficult for me to see how the long-term phosphate outlook was the triggering event for this write-down.”
With such high stakes, the future of global phosphates production and trade will no doubt be a major talking point during CRU’s forthcoming Phosphates 2021 virtual event in late March. CRU’s authoritative annual phosphates market outlook will no doubt offer-up some answers – providing another reason to attend what is always a lively, well-organised and informative conference.
