FocusIFA ’12: Time crucial in China, India DAP endgame

22 May 2012 12:03  [Source: ICIS news]

By Karen Thomas

DOHA (ICIS)--The longer India stalls on settling phosphoric acid prices, the greater the role time will play in setting the diammonium phosphate (DAP) price direction, sources said at the International Fertilizer Industry Association (IFA) conference in Doha, Qatar on Tuesday.

Expectations that second-quarter contracts would be agreed at IFA were confounded after the Indian delegation withdrew from the event to underline their stance against phosphoric acid and DAP prices.

Meanwhile, Moroccan fertilizer producer Office Cherifien des Phosphates (OCP) confirmed that talks with Indian joint venture partners Paradeep Phosphates Limited, Zuari and Tata Chemicals Limited were off and unlikely to resume until June.

OCP, which supplies almost half of India’s annual phosphoric acid requirement – and settled at $905/tonne (€706/tonne) CFR (cost and freight) for first-quarter contracts – is holding out for a similar second quarter price that equates to a DAP parity price of $550/tonne CFR.

“Nobody believes the buying ideas coming from India,” said one global phosphates trader. “Jordanian, Russian, Moroccan and Saudi Arabian producers are all comfortable going into June, so the buying prices are out of kilter with the direction of the international market.”

US, Russian, Mexican, Moroccan and Jordanian producers are sold out for May, with DAP and monoammonium phosphate (MAP) sales already booked for June – underpinning the recovery of the phosphates market from its first quarter slump.

Export prices are being pulled upward in a MAP-driven market, as Brazil looks set to import up to 400,000 tonnes in June and July.

Although DAP prices are in a holding pattern until there is resolution in India, the last DAP business out of the US Gulf – at $570/tonne FOB (free on board) for June shipment – opens the way to higher DAP prices for June and July.

The intransigence to settle will lead to delays on agreeing contracts for DAP between US suppliers and Indian buyers – negotiations that subsequently yield price discovery to the market.

The effects of the delay are now being felt in China, which will open its low export tax window for DAP and MAP on 1 June.

Chinese producers have four months during which DAP and MAP exports are subject to a 7% levy. A 110% export tax is applied to cargoes shipped outside this window.

China exported 2.4m tonnes of DAP in 2011, and traders have already taken positions on Chinese product in the $555–560/tonne FOB range.

India, which imports almost 50% of globally-traded DAP each year, needs to buy for the July kharif planting season, and Chinese DAP cargoes usually feature prominently in purchases.

Although this largest DAP market enjoys a discount on contract from suppliers compared to other demand regions – and imported almost 7m tonnes in 2011 – the spread between bids and offers is wide.

Buyers are using high levels of DAP inventory – estimated at 1.5m tonnes – a weakened phosphates market, compared to 2011, and decreased buying power of a devaluing Indian rupee (Rs) as leverage to negotiate lower prices.

India stands on $520/tonne CFR bids, and China DAP is offered at $550/tonne FOB. As China to east coast India freight rates are estimated at $32/tonne for handymax cargoes, the gap between bids and offers is $62/tonne.

In addition, a firming phosphates market has seen increased offers of Chinese DAP at $575/tonne FOB, with expectations that this price move further up in June.

The urgency to begin shipping as soon as the low export window opens is beginning to press home, and timing is set to play a crucial role in the 2012 demand/supply endgame.

China’s narrow export window, coupled with limited port capacity, could collide with India’s monsoon, disrupting discharge and leaving farmers scrambling for DAP in late July as inventories are depleted.

Given that the depreciation of the Indian rupee crossed the $1 to Rs54 threshold this week, DAP offtake could begin early should farmers detect that import prices will go up and costs passed to end-users in the form of increased retail prices.

Current inventories are expected to cover kharif requirements until the end of July, but early offtake – coupled with slowed domestic production due to the lack of phosphoric acid imports – could accelerate stock depletion and pressurise the need for June imports.

“There will not be an oversupply of DAP on the global markets if India continues to delay,” said another global trader. “There will be fewer Chinese exports because, logistically, it will be difficult to catch up and the Indian rainy season begins in July.

“The supply/demand scenario might be different if India and China agree a price in May, but this is looking less likely and, therefore, it is looks like less DAP will be exported from China this year.”

Benchmark DAP Tampa prices have gained traction since the $80/tonne plunge at the end of 2011, but they have some way to go before achieving the $605–610/tonne FOB levels recorded this time last year.

Maintaining the upward trend is dependent on supply and demand between China and India, which is so far unresolved. 

The IFA conference runs from 20–23 May.

($1 = €0.78)

($1 = Rs54.9)

For more information on phosphates and other fertilizers, please visit ICIS pricing fertilizers

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By: Karen Thomas
+44 208 652 3214

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