INSIGHT: Coronavirus containment measures could benefit global phosphates market

LONDON (ICIS)–A decrease in phosphates availability from China due to the coronavirus outbreak could spell good news for other producers on reduced oversupply.

Ratings agency, Moody’s Investor Service argued this week that global supply will be tight in the first quarter, while producers like Mosaic in the US and OCP in Morocco slowly return to full production.

China is the biggest producer of phosphates globally and most diammonium phosphate (DAP) and monoammonium phosphate (MAP) plants are concentrated in Hubei province.

In January-November 2019 China produced around 13.83m tonnes of DAP and 10.78m tonnes of MAP, most of which is exported.

The Moody’s report noted that nearly one third of phosphate fertilizers produced in China comes from the Hubei province and the country accounts for over half of global production and exports a large share of the phosphate fertilizer that it produces.

The coronavirus outbreak in China escalated shortly after the Lunar New Year holiday amid the start of the domestic fertilizer season which was pushed back due to the virus and constraints in transportation and logistics.

The phosphate production facilities in Hubei have been on extended shutdown since and will not resume until at least March.

However, recently operating rates at some domestic DAP/MAP plants have resumed at 40%.

Domestic phosphates production remains low and short-term domestic demand is strong.

Especially, demand for powdered MAP is high, with long-term stocks at ports heard being transported back to the domestic market and being crushed to powder MAP instead of exporting them.

Some phosphate fertilizer producers in China were preparing for production recovery, to ensure supply for spring ploughing. But the resumption of operations was subject to government restrictions, such as staff not allowed to enter and exit the plants freely for a temporary period. However, only a few producers in Hubei met such requirements. Otherwise, phosphate fertilizer plants outside Hubei are operating at an average run rate of around 70% accroding to ICIS sources.

A trader said that “there is tightness for prompt shipments [out of China] but that will ease after one month.”

Another trader said that the virus outbreak “affects more MAP than DAP, more MAP comes from Hubei. [This] Definitely helps producers as Chinese exports should be less.”

DAP offers have increased in recent weeks in India due to the tight availability out of China.

China DAP Top 10 Exports (tonnes) January-December
Country	2018	2019	Market share (%)	YOY change (%)
India	3,041,852	2,486,025	38.40	-18.27
Pakistan	1,459,491	859,265	13.27	-41.13
Vietnam	607,761	492,282	7.60	-19
Thailand	374,456	458,513	7.08	22.45
Japan	287,132	378,610	5.85	31.86
Indonesia	279,428	337,555	5.21	20.80
New Zealand	276,078	284,159	4.39	2.93
Bangladesh	462,466	262,000	4.05	-43.35
Australia	48,977	183,188	2.83	274.03
Philippines	92,686	102,221	1.58	10.29
World	7,468,248	6,474,928	100	-13.30

Also, the Chinese government was planning to increase efforts to help transportation and logistics firms resume operations following the virus outbreak, according to local media.

The Cabinet plans to step up tax and fee cuts for transportation and logistics firms, which will pay half of land use taxes for bulk commodity storage.

From 1 March to 30 June, port construction fees for the import and export of goods are heard to be exempted. Government-set fees on port facilities will be decreased by 20%.

By 30 June, transportation and logistics firms will be expected to pay half of railway insurance fees and charges on extended use of containers.

China is also planning to speed up the allocation of transfer payments to local governments.

Chinese fertilizer producers have said that natural gas prices need to fall more to ensure smooth supply and stable prices for the upcoming spring application season.

On 22 February, state-run National Development and Reform Commission (NDRC) said it will reduce domestic natural gas prices until 30 June. Fertilizer producers say this price cut is too small.

The move is the government’s latest attempt to boost the economy following the coronavirus outbreak as several sectors struggle to return to business as usual.

The extent of the price reduction is not known with decreases differing by region.

In Sichuan province, the gas price reduction is heard to be by CNY 0.1/cubic meter to CNY 1.65/cubic meter, according to a source.

Local governments are also working to ensure that transport and business links are soon re-established following the coronavirus outbreak.

China MAP Top 10 Exports (tonnes) January-December
Country	2018	2019	Market share (%)	YOY change (%)
Brazil	814,355	650,648	27.21	-20.10
Australia	352,439	481,843	20.15	36.72
Argentina	381,748	294,467	12.31	-22.86
India	153,788	157,104	6.57	2.16
Uruguay	89,755	100,776	4.21	12.28
Japan	14,332	77,844	3.26	443.15
Thailand	49,348	62,587	2.62	26.83
Taiwan	53,184	54,854	2.29	3.14
Malaysia	88,207	54,014	2.26	-38.76
Chile	38,631	51,684	2.16	33.79
World	2,489,556	2,391,441	100	-3.94

Many provinces have removed bans on transportation and logistics, while companies no longer need to get government permits for resuming production.

The Moody’s report comes at a time when major phosphates producers, like Mosaic and OCP, are returning to full production after running at reduced rates for months because of global oversupply.

In February, Mosaic announced it will return its phosphate operations to full production because the good December and January demand in North America depleted its phosphate stocks.

The producer added that concerns about product availability have changed market sentiment and are driving strong global demand for phosphates.

In December 2019, Mosaic cut phosphate production at its Central Florida facilities by 150,000 tonnes/month following the 500,000 tonne reduction in the second half of 2019, primarily in Louisiana.

The producer posted a drop in phosphates sales in 2019 to 8.2m tonnes from 8.4m tonnes year on year.

In the US, an increase in acreage for corn is expected to 97m tonnes which is up on the previous year’s original estimate of 92m tonnes. Soybean acreage is estimated at 82m tonnes.

Moroccan phosphates producer Office Cherifien des Phosphates (OCP) also temporarily cut phosphates production from mid-December until end-February.

The decision to reduce production by 500,000 tonnes was driven by bad weather conditions and delays at Moroccan ports that were expected to last until the end of February.

The situation in China will continue being a key factor in the second quarter  when most phosphates demand will emerge globally, especially in India and the US.

Insight article by Sylvia Traganida

Additional reporting by Deepika Thapliyal and Rita Wang