2023: the phosphates year in review

PHOSPHATE MARKET REPORT

2023: the phosphates year in review

With phosphate supply concerns persisting as 2023 draws to a close, CRU’s Senior Analyst Logan Collins looks back at what’s been a dynamic year for the global phosphate market.

State-of-the-art remote operation station at Mosaic’s Integrated Operations Center, Lithia, Florida. The operator is controlling high-pressure water guns in the phosphate mining area located miles away.

PHOTO: THE MOSAIC COMPANY

Weak first quarter demand

Prices of phosphate fertilizers (DAP/MAP) were softening in most key global markets as 2023 began. Demand was limited in India, the US, and Europe, with the latter region particularly slow due to the persistence of a price premium.

Notably, steady sales were still recorded from China, despite the reported lack of Chinese DAP/MAP availability under Q1 export quotas set by the government. These Chinese export sales added to the downward price pressures linked to weak demand.

Brazil was the one market which bucked the early 2023 trend. Instead, the affordability of MAP relative to crop prices in Brazil was favourable enough to encourage buying interest.

At the start of January, India DAP prices were around $700/t cfr, while Brazil’s MAP prices were roughly $50/t lower.

Global DAP/MAP prices did, however, converge in the weeks that followed, as DAP prices in India dropped amid rumours of an unprecedented mid-season subsidy cut. Delays to the settlement of India’s Q1 benchmark phosphoric acid contract price, together with falling nitrogen costs, also weighed on global DAP/MAP prices as February began.

In a reflection of ongoing DAP price declines, India’s Q1 phosphoric acid price was eventually agreed at $1,050/t cfr (100% P2 O5 ), marking a decline of $125/t from 2022 Q4.

DAP/MAP markets were generally characterised by persistently weak demand over the remainder of the first quarter – this more than of setting low supply from China and Morocco. OCP at this time was operating its granular fertilizer capacity at just 50 percent, according to CRU estimates.

By the end of Q1, India’s DAP prices had slumped an average of $112/t since the star t of the year, with the pace of decline accelerating.

Brief Easter respite in the US

Most global DAP/MAP prices were pushed lower in early Q2 by a combination of reduced raw-material costs, rising stocks, limited demand, and growing expectations of easing export quotas in China. An additional expectation that India would cut its Kharif season subsidy added to the price downside.

In the US, however, the Easter period saw a DAP/MAP price surge on the back of spring demand. This resulted in the New Orleans (NOLA) DAP price becoming the world’s highest benchmark, reaching $620-700/st f.o.b. ($681-770/t) during this period (Figure 1). The upper end of this range was more than $200/t above DAP prices in India (Figure 2). Nonetheless, outside the region, price declines continued.

The US price surge eventually came to an abrupt halt when India’s Q2 phosphoric acid contract price was agreed at $970/t cfr (100% P2 O5 ) in late April, down $80/t from Q1. This prompted a memorable collapse in NOLA DAP prices in early May – the last bulwark of price support globally – by $150/st in just one week, as spring buying petered out (Figures 1 and 2).

Market sentiment was therefore overwhelmingly bearish as participants gathered for the International Fertilizer Association (IFA) annual conference in Prague in May. With DAP/MAP prices still under downwards pressure, buyers were looking to take further advantage. OCP’s strategy dominated the discussions in Prague, given that the Moroccan producer had yet to increase its sales volumes.

It was around this time that China’s government acted to ease export restrictions by cutting inspection times for DAP/MAP exports to a maximum of 10 days. The move almost immediately resulted in greater overseas market availability at more aggressive prices. Consequently, China’s DAP export prices star ted slipping below $500/t f.o.b. in mid-to-late May, while domestic prices also tumbled (Figure 3).

As Q2 ended, DAP/MAP markets awoke from their temporary slumber on reports of an India Q3 phosphoric acid settlement at $970/t cfr (100% P2 O5 ) – down $120/t from Q2.

Fig 1: New Orleans DAP vs MAP price, December 2020 – December 2022*

Rising from the floor

Although India’s DAP prices remained under downwards pressure at the star t of Q3, other markets had reached their floor. Brazil’s MAP prices, for example, which had touched as low as $420/t cfr in late June, star ted to firm on the back of improved demand. In fact, these MAP price levels were the lowest recorded in Brazil since the beginning of 2021.

Rising Brazilian MAP prices and softening Indian DAP prices converged during July (Figure 2). Steady export volumes from China, meanwhile, in advance of that country’s autumn application season, allowed Indian buyers to take advantage and secure cargoes. Tight supply in the US around this same time was supporting a strong rebound in DAP/MAP prices (Figure 2).

Then, in August, a drop in DAP export supply from China prompted a price surge in India, with sales in the second week of August reported to be as much a $90/t higher on the preceding week. These steeper than expected Indian DAP price rises spread the bullish sentiment to other markets.

Prices climbed higher across most key global benchmarks in September as global DAP/MAP supply tightened. Availability from China was scaled back and plant maintenance restricted Russian availability in September-October. Production issues were also reported in the US and in Saudi Arabia. In addition, monthly volumes from OCP were judged to be below production capacity, despite an apparent increase in sales. Steady demand from India also tightened supply.

Changes to subsidies, duties and export restrictions

India once again took centre stage in late October as the government finally announced a cut to the nutrient-based subsidy (NBS) for fertilizers in the Rabi season. The 31 percent drop in the NBS for DAP from 1st October was widely expected in the market and therefore did not impact DAP prices. These remain flat and in the mid-$590s/t cfr at the time of writing (mid-December).

Elsewhere, the intensification of the Israel-Palestine conflict in early October – which saw some of the worst fighting in the region in more than half a century – raised phosphate and potash supply concerns. Although the conflict continues to pose an upside risk to prices, regional production, logistics, and trade were understood to be largely normal, as of mid-December.

The US Department of Commerce (DoC) slashed the counter vailing duty (CVD) rate on imports from Morocco’s OCP from 19.97 percent to just 2.12 percent at the star t of November, while at the same time tripling the CVD on imports from Russia’s PhosAgro from 9.19 percent to 28.5 percent. This should increase DAP/MAP supply from Morocco to the US, in CRU’s view, as well as narrow the US MAP price premium over DAP. However, an increase in Moroccan supply is only likely to happen in Q3 ahead of the fall 2024 application season.

Also in November, China’s National Development and Reform Commission (NDRC) tightened DAP/MAP export restrictions by suspending export inspections. These latest restrictions, which are likely to persist until China’s domestic spring season concludes at the end of Q1 2024, have led CRU to revise down its Q1 Chinese DAP/MAP export forecast to 0.67 million tonnes.

Originally, prior to the introduction of fresh Chinese export restrictions, CRU had been forecasting global DAP/MAP prices to reach a ceiling in 2023 before facing downwards pressure over the remainder of the year. DAP demand from India did drop, for example, as the NBS cut pushed import margins into strongly negative territory. This subsidy cut, given that demand elsewhere is still not particularly strong, could have been the final nail in the coffin for phosphates producers.

Fig 2: Selected DAP/MAP benchmarks, December 2020 – December 2022*

Yet DAP/MAP supply remains tight – a situation that has been further compounded by stricter Chinese export controls. Therefore, for now, limited availability is more than offsetting seasonally slow demand in some global markets.

Demand from key buyer India should also improve over the coming months. The Indian government signalled its intention to increase the fertilizer subsidy for the remainder of the Rabi season as market participants gathered in New Delhi to attend the annual FAI conference in early December. Although it is unclear to what extent this will improve the NBS for DAP, the rumoured increases should be enough to boost Indian import demand. It looks as if both Indian buyers and the government are becoming more concerned about DAP availability in advance of the national election in 2024.

Fig 3: Chinese domestic vs export DAP prices, December 2020 – December 2022*

Prices lower but historically high

Global DAP/MAP prices will end 2023 at notably lower levels than at the end of 2022 (Figure 2). Yet benchmarks remain historically high amid ongoing geopolitical tensions and wider concerns over fertilizer availability and food security.

While some supply constraints have largely normalised since Russia’s invasion of Ukraine and the height of the Covid-19 pandemic, significant market uncertainty remains Phosphate fertilizer prices are unlikely to see sustained declines until well into 2024, in CRU’s view, and many benchmarks could even remain at historically high levels beyond this.