OUTLOOK ’18: Strong phosphates demand expected in Q1 despite fears of oversupply

LONDON (ICIS)–The phosphates market is starting 2018 with bullish expectation of demand in major regions, with buyers in India likely to return to the market in mid-Q1 following the announcement of next year’s subsidies levels and maximum retail price (MRP) in February.

There are expectations that buyers will make purchases soon, as they closed 2017 with low diammonium phosphate (DAP) stocks around 500,000 tonnes and DAP imports to the country since April have been below 4m tonnes. There are estimates that DAP imports to India in this financial year (April 2017-March 2018) will reach 4.5m tonnes.

Phosphoric acid negotiations for Q1 deliveries have also started between Moroccan producer OCP and its Indian joint venture partners. The producer is maintaining high offers around $700/tonne CFR (cost and freight) and Indian buyers are not eager to accept above $630/tonne CFR. The settlement of the contracts is expected to offer some price direction to the market and determine whether it will be cheaper to import DAP or produce it domestically using phosphoric acid.

Market players are worried that the first quarter will be dominated by oversupply, as more product from Morocco and Saudi Arabia is expected to come to the market. The idling of the Mosaic Plant City facility in October has not done much to curb the glut of product in the market, and it remains to be seen whether demand can meet all this supply, as producers do not seem willing to lower their prices and buyers can afford to wait to make purchases.

China producers on the other hand have been reluctant so far to lower DAP price offers and have been engaged in a stand-off with buyers, mainly in the Indian subcontinent. Higher DAP offers are expected to remain in China, as demand is expected to start slowly in the new year. However, Chinese producers are expected to remain on the sidelines and focus on the domestic market and shipping previous orders until the Lunar New Year in mid-February.

Phosphates operating rates at domestic DAP/monoammonium phosphate (MAP) plants in China have been reduced recently due to the government’s crackdown on environmental pollution which is expected to continue in 2018. Tight product availability from China has been affecting the market, with buyers looking elsewhere to secure product and producers pushing their offer prices up.

Furthermore, the Chinese government has introduced a new environmental tax which is expected to affect the fertilizer industry. Under the new tax regime, which takes effect from 1 January 2018 producers will be charged China yuan (CNY) 5/tonne of coal waste, CNY1,000/tonne of hazardous waste, CNY1.2 per unit of atmospheric pollution, and CNY1.4 per unit water pollution unit.

Also, effective from 1 January 2018 the Chinese government has retained its export tax on DAP/MAP/triple superphosphate (TSP)/single superphosphate (SSP) for 2018 at zero. The export tax rate for phosphoric acid has also been kept at zero.

The export tax rate for nitrogen, phosphate, potassium (NPK) fertilizers has been reduced to CNY100/tonne ($15.1/tonne) in 2018 from 20% in 2017. For phosphate rock, the tax rate has been reduced to 10% from 15%.

West of Suez, the US domestic availability remains tight and is expected to remain so in the first quarter. Cargoes from Morocco and Russia are expected at Nola, but it seems there will be delays in deliveries from the former on the back of adverse weather.

The Brazilian MAP market is mainly covered for the safrinha season with previous purchases and domestic production and prices seem to have eased their upwards rally. Demand is expected to pick up in January/February for the main season.

On the supply side, the tight product availability is expected to continue in the first quarter of 2018, as Russian producers are comfortable with shipments to the domestic market, the rest of Europe and Latin America. Saudi producers have already increased their offers for Q1 in anticipation of high demand, especially from southeast Asia and the Indian subcontinent.

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