OUTLOOK ’20: Phosphates market ready for a difficult 2020 plagued by oversupply

LONDON (ICIS)–The phosphates market is bracing for a challenging 2020, following a year of oversupply and lacklustre demand globally.

India will continue to be the deciding factor in the market, as is the case every year. Diammonium phosphate (DAP) stocks are high in the country and requirements are covered for the rabi season.

It is estimated that total DAP imports will reach around 5.5m tonnes by the end of March 2020. More import demand is expected to pick up in the second quarter, following the new budget and the settlement of the phosphoric acid contract price.

In late December, OCP settled phosphoric acid contracts with its joint venture partners for first-quarter deliveries to India at $590/tonne CFR (cost and freight) with 30 days’ credit.

The price reflects a $35/tonne decrease from the fourth-quarter price of $625/tonne CFR, and is the fifth consecutive decrease.

The DAP parity is calculated around $360/tonne CFR, with an average ammonia price at $265/tonne CFR.

The settlement of the phosphoric acid price is expected to give some price direction to the market, as well as some insight on import demand for the first quarter as it is cheaper to import DAP rather than produce it domestically using phosphoric acid.

In China, phosphates producers are focusing on the domestic market until at least the Lunar New Year at the end of January, which is earlier than other years.

There is talk that Chinese DAP prices have not yet reached a floor, and will not do so unless Chinese production costs start squeezing producers and traders.

Domestic DAP/monoammonium phosphate (MAP) production rates are still low and will continue in the first quarter, as China continues to crack down on environmental pollution.

Another factor expected to affect the market is the US trade war and its effect on the Chinese economy and especially imports of soybeans from the US or Brazil.

Also, African swine flu has affected the market and killed almost half of the pig population in China and this will in turn hit demand for feed fertilizers.

West of Suez, domestic DAP/MAP barge prices are expected to rebound in the first quarter of 2020, as buyers prepare for spring application. At the moment, there is enough supply in the system to last through the spring as product on incoming cargoes will be applied in the spring.

Also, Mosaic plans to cut phosphate production at its Central Florida facilities by 150,000 tonnes per month following the 500,000 tonne reduction for the second half of 2019, primarily in Louisiana.

In Latin America, MAP demand in Brazil is expected to re-emerge in the first quarter following a slow year and a drop in prices.

Argentina and Uruguay are expected to come back to the market in the first quarter, creating some much-needed demand.

Global supply is expected to persevere until spring 2020 despite a decrease in production in China and the US.

Also, PhosAgro will switch more product in January-February to the domestic market and it will reduce its export sales by approximately 20% for mainly MAP/DAP.

The decision was made to reduce pressure on export markets and due to the heavy growth in the domestic and regional markets and some reshuffles in its maintenance programs.

Moreover, OCP will temporarily cut phosphates production from mid-December until end-February 2020.

The decision to reduce production by 500,000 tonnes was driven by recent weather conditions, and that forecast consignments at Moroccan ports will continue until the end of February 2020.

Demand is estimated to kick in for spring in the first quarter globally following the off season in the fourth quarter and the high stocks in India and the US purchased through 2019.