09 February 2011 17:27 [Source: ICIS news]
By: Mike Nash
LONDON (ICIS)--The phosphate fertilizer market may currently be flat but fundamentals are firm, underpinned by limited supply for shipment in February, the imminent re-emergence of ?xml:namespace>
In advance of
It is difficult to argue for any downside. The key
This is completely in line with the Phosphate Chemical Export Association (PhosChem) strategy of setting new
“I won’t go for higher prices yet, I’ll keep it steady for now as I don’t want to risk demand destruction but come March I’ll start to push it up,” said one highly experienced trader.
In the background lurk contract negotiations with
The answer is actually pretty straightforward. Sellers hold the upper hand. Why? Because
Various government bodies in
While it is true that
Demand for the rabi season in
For now the market is still waiting for
Late last year the government, in a pretty transparent attempt to influence negotiations early, reduced the subsidy available, meaning that the most importers could pay was $450/tonne CFR.
This is completely contrary to market direction and sentiment. Allowing for freight it equates to $380/tonne FOB
It is apparent that some compromise will be found. Several numbers are being mooted and PhosChem, which effectively sets the price for all other suppliers, is rumoured to be meeting Indian officials in
That is still a major discount to the spot market, but PhosChem knows it cannot expect
The question then becomes: what happens to the spot market? In 2010 (the first year
This time round the difference between the contract price and spot levels will be much higher.
“So what is PhosChem going to do: push the price up in $5/tonne increments or $20/tonne increments?” asks one trader rhetorically.
It is the $64,000 question. If history is anything to go by, PhosChem will play it carefully, anxious not to choke off demand in other key markets.
Market participants also have long memories - with the market crash of 2008 still fresh in their minds. Fertilizer prices boomed due to firm crop pricing and market speculation, but the market dived in the wake of the financial crisis and many importers and traders were left with high-priced fertilizer stocks that have only recently been worked through the system.
There are still a few variables that could negatively impact pricing. Last week, the
Looking at the supply side, nearly all producers are fully sold out through February and several until the second quarter.
Another bullish factor is the situation in
The disruption is due to localised civil unrest which is hampering phosphate rock supplies from Gafsa in the southwest of the country.
Looking forward, a major pull on US DAP in the domestic system in March, coinciding with the start of exports to
The situation in
Looking further forward, there are estimates that Saudi Arabia’s new 3.2m tonne/year DAP Ma’aden plant may provide 1m tonnes of DAP to the export market in 2011. However, it is likely that increased demand in
As one seasoned trader keenly observed: “2011 will be like 2010 all over again but just at higher prices.”
($1 = €0.73)
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