Rabobank: Fertilizer Supply May Outweigh Demand in 2015
December 30, 2014 As fertilizer supply appears set to outweigh global demand, the forecast for the first quarter of 2015 looks rather cloudy in terms of pricing, according to Rabobank’s latest Fertilizer Quarterly report.
While spring demand in the Northern Hemisphere – including the U.S. – will prevent prices from slipping significantly, Rabobank believes that lower farmer margins will make farmers more prudent in fertilizer application. However, strong demand destruction is unlikely.
According to the report, an increase in urea supply in the first quarter of 2015 will set the tone for global urea prices. Supply is likely to outstrip demand in Q1 2015, as rumored new capacity in Algeria and Egypt comes online and the just-announced change in Chinese export tariff is likely to boost urea availability. China will replace its tax seasons by a single flat tariff of 80 CNY/ton for urea.
“Chinese urea export availability could improve by another 10 to 15 percent in FY 2015, as China seems very close to abolishing its policy of separate tax windows”, says Rabobank analyst Suzanne Pera. “This would amount to 11.6 to 12.1 million tons based for FY 2015”
However, spring demand for urea in the Northern Hemisphere could prevent prices from slipping significantly, providing a floor for the global urea market. The Southern Hemisphere is mostly out of season, and demand is largely covered.
Spring demand in the Northern Hemisphere would normally provide upside in phosphates as well, when combined with supply management. However, the new Chinese tax policy of 100 CNY/ton for DAP, will provide downside, as availability of phosphates would improve. If prices decline significantly, some buyers might be inclined to lock-in prices.
Meanwhile, the potash market is awaiting the outcome of negotiations between suppliers and China for the Q1 2015 price direction. Continued pressure on farmer margins in the U.S. and Europe is likely to drive spring potash applications lower by as much as five percent. Relatively high inventories and downward price pressure on grains and oilseeds will put a lid on further price increases.
“Reduced global demand and relatively high inventories in significant spot markets give China pricing power, despite producer-managed supplies and a flooding accident at one of the Russian mines”, says Rabobank Global Strategist Dirk Jan Kennes.
Rabobank believes that for now the most likely scenario is that China will roll-over on its 305 USD/ton CFR contract.
Source – Rabobank
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