Whilst inventory loads are adequate in some key markets China will close its low export tax windows for phosphate and urea, affecting export availability. Attention is heavily focussed on the US in the fallout of the drought, and US fertiliser demand will be a key factor in the coming autumn and spring application windows, given favourable crop economics. The market balance will be helped by additional capacity coming on-stream and plant restarts following scheduled maintenance. Overall market fundamentals suggest global fertiliser prices will remain relatively steady through Q4 2012; but with some upside potential.
Q3 proved a lethargic trading period with global fertiliser markets being relatively weak. Purchasing in India and Pakistan was cautious, culminating in weaker trading activity across Asia. China’s low export tax window for phosphate and urea remained open in Q3 2012 helping global supplied but production cutbacks in some regions combined to help keep markets relatively balanced.
We enter Q4 with mixed price movements across the fertiliser complex. Global prices for urea products are 10%-13% softer than in the previous quarter, while prices for potash and phosphate remain relatively unchanged. Global urea prices are down 25% compared to the highs of Q3 with phosphate prices also dropping by 10%. Global potash prices have remained firm however rising some 10%. All global nutrient prices remain well short of the historic highs witnessed in 2008.
The severity of the US drought drove up global grain and oilseed prices significantly. Global fertiliser demand should benefit from higher agricultural commodity prices which elevate the purchasing power of farmers. Improved cash flows should see farmers increasing their expenditure on farm inputs in a bid to increase yields and further capitalise on the higher prices. In the wake of rallying agricultural commodity prices, fertiliser activity began to pick up as buyers were encouraged to step back into the market.
Approaching crop planting programmes in South America will be critical in restoring the global balance of grain and oilseed markets. The weather outlook is fuelling the likelihood of a strong programme with the latest indicators showing El Niño weather patterns are strengthening, meaning on average higher summer rainfall to Argentina and southern Brazil. Farmers in Brazil's grain belt began planting after early showers set the scene for what are expected to be bumper corn and record soybean crops.
From a fertiliser supply perspective, markets are wary that low export tax windows will close for phosphate and urea exports from China, reducing export availability. For phosphates this will come at the end of September and for urea at the end of October. In addition there is some concern that plant restarts and additional product from new capacity that is due to come on-stream could be delayed.