Phosphate prices rise amid trade, supply issues

Mosaic asks for duties on phosphate imports from subsidized foreign competition in Morocco and Russia

Countervailing duty petitions launched by one of the world’s largest manufacturers of phosphate fertilizer have sparked a price rally for the crop input, says an analyst.

On June 26, The Mosaic Company filed petitions seeking duties on phosphate imports to the United States from Morocco and Russia.

The company alleges that fertilizer producers in those two countries receive unfair government subsidies that artificially lower their production costs.

It is seeking duties of 71.5 percent on Moroccan imports and 30.72 percent on Russian imports.

The U.S. International Trade Commission (ITC) and the U.S. Department of Commerce (DOC) are expected to make final decisions on Mosaic’s petition in the first quarter of 2021.

But the market has already factored in a yes vote from both agencies, said Josh Linville, fertilizer analyst with StoneX Group.

Diammonium phosphate (DAP) prices in New Orleans have shot up to US$320 per short ton from $275 prior to the petition announcement.

“(It) has had a massive effect on the North American market,” he said.

The ITC made its preliminary decision on Aug. 7, voting to proceed with Mosaic’s request. The DOC’s preliminary decision is expected on Sept. 19 or Nov. 23.

Phosphate prices are likely to fall if the agencies surprise the market with their final decisions and turn down Mosaic’s request for countervailing duties.

“We could lose most, if not all, of what we’ve gained since the announcement was made,” said Linville.

Phosphate imports into the U.S. have dried up as the market awaits the final rulings. Russia and Morocco fear they will face retroactive duties on any product shipped after the petition was filed.

U.S. phosphate imports were down 244,000 tonnes or 16 percent for the first half of 2020 versus the last half of 2019.

Mosaic has a different take on why phosphate prices have been on the rise lately. The company said the market has become much tighter in recent months.

“We have moved from an area of high inventory to very low inventory in phosphates as we move into the third quarter of this year,” Mosaic president Joc O’Rourke told investment analysts during a recent webcast discussing the company’s second quarter 2020 financial results.

He said the countervailing duty petitions should have no impact on the global phosphate market.

“We don’t think this will impact global supply and demand, all we will do is probably change trade flow,” said O’Rourke.

He said the current tightness in the market is due to production curtailments caused by COVID-19 and other factors.

Mosaic estimates there has been a three million tonne reduction in production so far in 2020 compared to last year. The company is also forecasting a 600,000 tonne drop in Chinese exports in 2020.

At the same time, demand is starting to recover in markets like India, which is expected to use an extra 600,000 tonnes of the fertilizer in 2020 versus a year ago.

The result is that a surplus of phosphate that existed at the beginning of the year is expected to turn into a 1.3 million tonne deficit by the end of the year.

Mosaic said that sudden shift in market dynamics has phosphate prices on the rise.

DAP prices in New Orleans are up $76 per tonne since hitting a low in May, while monoammonium phosphate (MAP) prices are up $73 per tonne.

MMR Research anticipates further price appreciation, according to its analysis of Mosaic’s quarterly results published in Seeking Alpha.

“In the short to medium term, and talking specifically about phosphates, we see a stable to gradual firming-up price trend for both DAP and MAP,” the firm said in its analysis.

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