Phosphate Price Steady as Producers Plan for Growth

General oversupply kept phosphate prices level at the end of January, Rabobank analysts said in a recent report.

Analysts at the Dutch bank believe that the lull in global trading activity that enveloped the fertilizer complex through the fourth quarter of 2012 has continued into the the first quarter of 2013 and will likely not abate before the summer.

Reduced end-user demand and inventory destocking have primarily driven this trend; these factors are the result of seasonal slowness caused by Northern Hemisphere crops being months away from requiring fertilizer and Southern Hemisphere crops already being underway.

Prices of diammonium phosphate (DAP) leveled off in January, bound between US$475 and $485 per ton fob Tampa range. DAP fertilizer prices have fallen continuously since the same period last year, losing about 5.5 percent in total.

Current demand is being driven by South American markets, with US DAP prices at $480 per ton fob and Tunisian DAP and monoammonium phosphate at about $470 per ton fob, according to the farming data source DTN Fertilizer.

Analysts at Australian bank Macquarie share Rabobank’s lack of optimism regarding a 2013 phosphate price revival, and have suggested that something must change if prices are to rise.

“Entering 2013, the bearishness continues with the market now fully believing that the global supply/demand balance will have to tighten in order to reinflate prices,” AgriMoney reported Macquarie as stating.

Food prices steady, but rising

Near record-high food prices in 2012 brought significant phosphate applications as farmers hoped to cash in on high crop prices. While certain agricultural zones, particularly South America, reaped strong crop numbers, others, such as the United States, experienced heat and drought, which reduced yields and forced many farmers to “plough down” crops, leaving high levels of phosphate in the soil.

On top of these factors, food prices, which dropped 7 percent year-on-year in 2012, according to data from the Food and Agriculture Organization of the United Nations (FAO), have kept expectations of a return to large fertilizer applications modest.

Nevertheless, the FAO warned in an early January release that a price upside might remain as “[f]ood prices will stay at high levels in 2013 and low stocks pose the risk of sharp price increases if crops fail.”

Macroeconomic growth from emerging economies continues to drive fertilizer demand as farmers try to extract increasing returns from new or intensively farmed agricultural lands.

Supply growth

Significant phosphate reserves lie within the Middle East and North Africa, regions that are striving to keep up with global demand growth.

Saudi Arabian Mining (Ma’aden) has set out ambitious goals to help meet global demand, announcing this week that it aims to complete the financing for a $7-billion phosphate project by the end of the year, Reuters reported.

Financing for the project will be used to fund the Umm Wual development at Waad Al-Shimal City; it will also be used to pay for infrastructure at Ras Al Khair on the eastern coast of the kingdom, Khalid Al-Rowais, vice president of finance at Maaden, said at a conference in Dubai.

The project will include seven plants and associated facilities that will produce 16 million tons per year of various phosphate products. Ma’aden also has two other currently operational primary projects, Al Jalamid and Ras Al Khair, which respectively produce 11.6 and 3 million tonnes of ore and DAP at full capacity.

Phosphate supply growth is likely to come increasingly from Saudia Arabia, Morroco and Western Sahara, but other projects will continue to spring up as demand for potash continues.

Arianne Resources (TSXV:DAN), a phosphate exploration company with a property in Lac a Paul, Quebec, recently announced that it has divested its non-phosphate assets to focus fully on “becoming a leading Canadian phosphate producer.”

Pierre Lortie, chairman of the board at Arianne, said the company will change its name to Arianne Phosphate in order to reflect its new focus.

“This divestiture will enable the Company to focus all its financial and management resources on developing its major phosphate deposit at Lac a Paul, in particular completing the Bankable Feasibility Study commenced last summer,” Lortie said in a press release.

 

Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.