Mosaic expects phosphate prices to rise due to demand

Nutrien takes gloomier view, saying long-term price outlook is challenging because of oversupply from low-cost regions

One of the largest manufacturers and retailers of nitrogen fertilizer products says an anticipated price rebound has been delayed.

“We believe there was little growth in global demand this year due to the macroeconomic impacts of COVID-19,” Nutrien president Chuck Magro told investment analysts during a recent conference call announcing the company’s third quarter 2020 results.

“This significantly reduced industrial demand, which we expect has delayed the recovery in nitrogen by about a year.”

He said nitrogen is the segment of the company’s agriculture portfolio that has been impacted the most by the global pandemic.

Magro said good demand growth for nitrogen in the agriculture sector has been offset by slumping demand in the industrial sector, resulting in flat overall demand for the product.

“And then some of the new production that was intended to come online late last year and then earlier this year, that also has been pushed out,” he said.

The upshot is that the nitrogen market in 2021 is likely going to be more balanced than originally anticipated.

Magro said potash prices bottomed out in early 2020 and are expected to rise as supplies tighten in 2021.

He doesn’t anticipate a similar rebound in nitrogen prices until 2022, but it will happen.

“With limited new supply after 2021, growing demand, higher global energy prices and an expected recovery in the global economy, we expect the nitrogen market to tighten over time,” he said.

North American urea prices are discounted compared to the rest of the world despite a 25 percent reduction in imports between July and September. Magro expects North American urea prices will tighten to close that gap.

Nutrien recorded a $760 million “impairment of assets” for two of its phosphate mines.

“This is based on our expectation for a challenging long-term price outlook for phosphates caused by structural oversupply from low-cost regions,” he said.

Joc O’Rourke, president of Mosaic Co., had a very different take on the phosphate market during a conference call announcing his company’s third quarter results.

He doesn’t believe the long-term phosphate outlook triggered Nutrien’s impairment of its assets, noting that prices are up significantly quarter-over-quarter.

O’Rourke noted that Nutrien sells purified phosphoric acid, which is highly impacted by the industrial sector, while Mosaic is focused on the agricultural fertilizer market, which has seen increased demand and pricing.

“We see a very good outlook,” he said.

However, the phosphate market has been disrupted by petitions filed by Mosaic with U.S. authorities seeking countervailing duties on phosphate fertilizer imports from Morocco and Russia.

The petition was filed June 25 and the U.S. Department of Commerce is expected to publish its preliminary findings on the petition by Nov. 23. Final determinations are expected in the first quarter of 2021.

In the meantime, Morocco and Russia have stopped shipping product to the United States, leaving some customers short of supply.

“They did it to make a political point and express their dissatisfaction over this being considered at all,” said O’Rourke.

Mosaic has been supplying the U.S. market with its product and has started importing tonnes from Ma’aden, a competitor in Saudi Arabia.

The sudden supply crunch has driven up prices in New Orleans in comparison to the rest of the world.

O’Rourke said global phosphate supplies are tightening because of an estimated 700,000 tonne reduction in Chinese exports in 2020.

A phosphate industry association in China estimates five million tonnes of diammonium phosphate (DAP) and monoammonium phosphate (MAP) production capacity has been lost since the government started implementing its environmental protection measures.

“Chinese exports are going to be constrained in the future,” said O’Rourke.

There have been modest increases in production by competitors Ma’aden and OCP, but overall he is forecasting a tightening market next year.

The increase in production in 2021 will be used to backfill reduced inventories around the world.

U.S. inventory will be down 600,000 tonnes heading into 2021, India will drop 1.3 million tonnes and China as much as 700,000 tonnes.

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