China turns off export taps

Fertilizer is loaded onto a ship for export at the port of Nantong in Jiangsu, China earlier this year, ahead of new export restrictions.  |  China Daily/Reuters photo

China has asked its top fertilizer companies to suspend exports of phosphate and urea, a bullish development for both commodities, says an analyst.

China’s National Development and Reform Commission (NDRC) summoned state-owned firms to a meeting where it asked them to curb exports, according to a Reuters story.

The country is the world’s top exporter of phosphate, shipping out 3.2 million tonnes of diammonium phosphate (DAP) in the first half of 2021, according to Reuters. It also exported another 2.4 million tonnes of urea.

Joc O’Rourke, president of The Mosaic Company, confirmed China is at least temporarily out of the market, according to a Seeking Alpha transcript of a conference call announcing the company’s second quarter financial results.

“Chinese exports are expected to decline in the second half of the year as in-country seasonal demand increases,” he said.

Jenny Wang, vice-president of global strategic marketing with Mosaic, said the Chinese government has growing concerns about domestic supplies due to strong international demand for phosphate and urea in the first half of the year.

Urea futures prices on China’s Zhengzhou Commodity Exchange are up by more than one-third since the start of the year due to strong overseas demand, lower production caused by flooding and high Chinese energy costs, according to Reuters.

Wang called the NDRC’s request to curtail exports a “soft regulation” that will be followed by “very hard measures” if the state-owned companies fail to comply. The government could raise export taxes on phosphate and urea.

Wang anticipates the “significant slowdown” in exports will not start until September because shipments for July and August are already on the books. She expects it to last at least through the end of 2022.

Josh Linville, fertilizer analyst with StoneX, said if China turns off the taps on exports it will support urea and phosphate prices come fall.

He thinks it will be especially beneficial for urea prices due to strong demand for the product out of India, Brazil and North America. There is expected to be a good mix of corn and soybean planting in the United States in 2022 and that bodes well for future nitrogen demand.

“I think prices stay fairly well solid here for the foreseeable future,” said Linville.

China is the world’s largest phosphate producer, churning out more of the product than the next three top producers combined.

“When they stop exporting it’s a very, very big deal,” he said.

“World prices will definitely be supported.”

However, he is starting to hear from growers that demand for phosphate may start dwindling this fall due to high prices.

“There is a lot of concern that at these types of values we will see sizable demand destruction,” said Linville.

The other thing that might happen is that farmers could “drag their feet” and push back fall application until winter or spring in hopes prices will fall.

He noted that there are a lot of growers in the U.S. Northern Plains, the Pacific Northwest and the Canadian Prairies that may not apply phosphate because not much was removed from the soil this year due to drought-reduced yields.

Phosphate is more of a discretionary input than nitrogen, so growers may cut back on that ingredient, keeping prices in check, he said.

O’Rourke holds the opposite view. He said North American fertilizer demand in 2021 has been considerably stronger than anticipated.

There was big growth in that market in 2020 and demand was expected to moderate in 2021.

“The opposite has happened,” said O’Rourke.

“Demand for potash and phosphate is up substantially compared with last year and nearly all of the fertilizer delivered this year has gone into the ground, which means channel inventories in most regions remain below historic norms.”

He anticipates strong grain prices to extend well beyond 2021, fueling further demand for fertilizer products in the fall of 2021 and the spring of 2022 despite high prices for the inputs.

O’Rourke said grain stocks are tight and global corn and soybean demand is growing, driven by surging demand from China and the global biofuel sector.

“As a result, agricultural commodity prices remain high and the outlook is promising for continued strong farm income,” he said.

“The world’s farmers have solid incentive to maximize yields from every acre and that is what drives fertilizer demand.”

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