13 February 2008 15:19 [Source: ICIS news]
By Mike Nash
LONDON (ICIS news)--Appalling weather conditions curtailing phosphate fertilizer output and a political mandate to prioritise domestic supply have combined to eradicate lucrative export opportunities, Chinese producers said on Wednesday.
Heavy snow storms continued to wreak havoc with power supply to major diammonium phosphate (DAP) fertilizer producers.
Local producer Wengfu said that its 1.2m tonne/year DAP plant, which ceased production in mid-January, was still completely shut down, with a company source not anticipating a restart until end-February or early March.
It had already lost 120-150,000 tonnes of DAP/MAP production.
Producers were also suffering from feedstock logistical problems. Shipments of coal to feed power stations were taking priority over ammonia trains (used in DAP production), said traders, as the government attempted to improve power supply.
There was still no official announcement regarding when the 35% export duty on phosphate fertilizers would take effect, producers said. However, some producers still expected a statement on 15 February.
“The government is determined to severely curtail exports in order to alleviate the expected 1.5m tonne DAP shortfall in the domestic spring season,” said one producer. “It has warned producers that domestic shipments must take priority.”
One producer said it believed that Beijing would continue to raise duty levels to curtail exports, although it acknowledged that ran the risk of adding to the DAP inflationary effect should Chinese prices still be competitive in the export market.
Domestic prices continued to be reported around CNY 4,100-4,200/tonne ($570-584/tonne) ex-plant.
At the old duty rate of 20%, producers said it was still profitable to export as international prices were skyrocketing and domestic prices gave an inferior return.
But at the probable 35% duty, this was no longer the case, producers said.
Producer opinion was split as to whether there would be government pressure to push prices down, eroding margins.
Some were worried that domestic prices would fall from these high levels to alleviate pressure on farmers at a time when producers faced high input sulphur costs.
There were rumours that the government was about to announce a new pricing policy before the energy crisis ensued. Some authority had reportedly passed from the central government to local authorities to supervise domestic prices and force producers to make plant prices public.
On the other hand, other producers argued that it made little sense for government to erode producer margins to the point where production was unviable due to the likely domestic DAP shortfall.
Exports of monammonium phosphate (MAP) fertilizer in 2007 reached 1.90m tonnes compared with 475,000 tonnes the previous year.
($1 = CNY 7.139)
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