Fertiliser price peaks

EUROPEAN farmers are paying between £185 and £255 per tonne more to import fertiliser than in most other food producing countries across the globe.

UK importers this week are paying around £925 per tonne for DAP (diammonium phosphate) 18:46:0 which would cost roughly £740 in the US, and £670 in Brazil and India. At farmer level, it is even cheaper in countries which subsidise fertiliser, such as India, where farmers are buying DAP at just £302/t, around 30% of the likely price paid by farmers in the UK and EU just now.

Meanwhile, China has placed an export ban on phosphate which has driven their DAP price down to around £430/t.

However, according to Tom McIvor, from mineral and fertiliser experts, CRU, prices could have peaked and be on the way down. His analysis suggests that whilst N prices remain tied to gas volatility the price of phosphates and potash could be coming down in the next 12 months.

He said: “Demand destruction is really kicking in globally, with some markets now seeing 10-40% drops in consumption. Phosphate suppliers like China, Saudi Arabia and the US, may look to move product to Europe due to its high premium, while Morocco’s OCP may look to increase its sales to the region, adding more downside pressure in 2023.

“We are also seeing Russia getting back into the European market within quota limits for NPK. The limit is having little impact as it is set at the average over the last three or four years.”

These increased supplies should pull the premium paid by European farmers down over the rest of the world.

China, one of the big three phosphates producers alongside Morocco and Russia, could push significant volumes onto the market from April next year. To keep domestic fertiliser prices low, its government has restricted and even banned the export of DAP and MAP (monoammonium phosphate) with zero currently permitted to leave the nation from January until April, 2023.

However, Mr McIvor believed that China might permit more export volumes in Q1 next year, with Q2 seeing a dramatic rise in supply. The price for DAP and MAP has been so low in China that some factories have stopped producing until prices rise.

In the medium term, exports from China should remain low as there is a limited amount of phosphate rock in the country and it has historically been reluctant to import phosphate raw materials. This is likely to result in reduced granular phosphate production over time with indications that the Chinese will focus on satisfying domestic demand.

Morocco, which has an annual capacity to produce 13m tonnes of granular phosphate, could also be in line to increase supply in the coming months. Following the price spike in spring 2022 when prices tripled to near four digits for typical seed bed fertiliser in Europe, the African kingdom cut production by 50%.

This allowed it to continue to receive the same revenue for a smaller volume of sales and prolong the price spike through tightening supply.

Mr McIvor believed that despite western sanctions on Russia, their sector is thriving. “The sanctions from the war with Ukraine were predicted to cut their ability to export and result in their pricing dropping and dropping. But instead, it went the other way round with the key producers in Russia not losing any sales.

“In fact, the half year net profit for PhosAgro [a giant Russian fertiliser manufacturer] was over $2bn, the highest of all phosphate producers. These companies were able to take advantage of the high price environment caused by fear on the impact of the sanctions.

The Russian suppliers of fertiliser were able to reorganise sales and switched supplies to Brazil and India and away from Europe. We are even beginning to see more and more sales to Europe from Russia with DAP, MAP and NPK finding its way in.

“There is some hesitancy from European buyers to purchase Russian fertiliser with concern over payment methods and insurance liabilities. It remains to be seen whether the large DAP/NPK plant at Lifosa, in Lithuania, will regain the ability to import raw materials which would bring that plant back online, adding further coveted supply to the continent.”

Similarly, Russia has also seen increased revenues from its potash production. Sales volume has only dipped roughly 10% in H1 2022 whilst North-west Europe’s granular MOP prices jumped from €245/t in May 2021 to €875/t in April 2022, according to Fertiliser Week. European buyers have been replaced by China, India and Brazil, which have increased purchases from Russia.

One major potash producing country, Belarus, has seen sanctions damage its industry. Historically, Belarus worked with Russia through the company BPC and controlled the world potash market alongside the other giant exporter CANPOTEX in Canada and the US.

These companies ensured that prices were kept stable and low enough to prevent new entrants to the market. However, from 2011, the agreement between Belarus and Russia broke apart splitting the company into Belaruskali and Russia’s Uralkali.

Furthermore, Russian suppliers, such as Eurochem, started to appear along side new countries making Potash such as Laos in Southeast Asia. This changed the dynamics of the market and increased volatility.

Belarus is now almost completely cut off from the global market with its only route through Russia. Whilst Russia has an agreement allowing Belarusian potash to be exported from their ports, Russian material has preference.

Recently, Belarus has been exporting smaller volumes through the trans-Siberian railway to central Asia but export volumes are still below 20% of 2021 levels.

Knocking Belarus out of the market has pushed prices up, but Canadian production is set to rise to reduce the shortage of potash on the global market.

Annually, India and China come onto the market to place massive orders which sets global prices. This year China entered the market just before the war in Ukraine and were purchasing potash at $590/t before it went on to double a few weeks later.

When China comes back to the market in spring 2023, Mr McIvor predicted the potash market will have cooled and it might end up paying around $500/t and missed out on the massive price spike cause by the Ukraine sanctions.

Meanwhile India bought heavily and expensively in spring 2022 so look to be well stocked going into their second annual purchase period.