US phosphate, potash markets diverge

OREANDA-NEWS. July 21, 2015. The US phosphate market enters the second half of 2015 on an upswing, with prices supported by resurgent crop prices and a lack of imports. But the rally's duration is uncertain.

There are supportive factors ahead of the fall application season. DAP barge prices have risen to \\$435/st fob Nola, up by about \\$30/st from April lows. The rise coincides with the rally in crop prices. New-crop corn prices have jumped by nearly \\$1/bushel to the mid-\\$4.50s/bushel over the last month because of excessive rainfall in the Corn Belt in June. That bodes well for phosphate fertilizer demand if crop prices can maintain this level or push higher.

Aside from grain prices, the main swing factor for the US DAP/MAP market will be imports. Unlike last year, the US is unlikely to see a large influx of offshore product ahead of the fall season. The US imported an unprecedented 283,000t of DAP in the third quarter of 2014—93pc of which came from China—and 386,000t MAP, most of which came from Morocco and China.

The US spent the majority of second quarter 2015 at a sizable discount to other markets, discouraging imports. Brazil cfr prices, for example, were at a \\$30-40/t premium for much of April through June.

Even though that premium has narrowed over recent weeks, timing issues and considerable Indian demand makes Chinese cargoes to the US unlikely. Market participants expect Moroccan shipments to the US to resume sometime in the second half of the year, with traders aiming to bring in cargoes ahead of the spring 2016 season.

Until then, domestic supply remains US buyers' only option for fall.

The US potash market has taken on a much weaker tone than phosphates as it contends with oversupply.

Barge prices are now testing new lows at the \\$310/st fob Nola level, even after Canadian producers introduced summer fill prices at \\$355/st fot Midwest aimed at stimulating demand. Even though that price came in \\$55/st lower than the headline level from the fourth quarter of 2014, buyers have yet to fully commit given the sense of oversupply. North American potash production reached record levels in the first quarter of 2015 while offshore suppliers from Russia, Israel, Belarus and Chile flooded with tonnage Nola to take advantage of favorable netbacks.

For the second half of 2015, it remains uncertain how much offshore product will be brought, especially with Brazil, the US' top competitor for granular MOP, behind on buying this year and Nola's premium to that market eroding.

Domestic supply will be reduced in late summer as mines undergo annual maintenance turnarounds, but US buyers should be well-supplied, especially given capacity expansions recently completed by Canadian producers.

Internationally, prices have trended flat-to-down despite substantial contract volumes booked for China and India. One potential market catalyst PotashCorp's takeover bid for German producer K+S. K+S rejected PotashCorp's initial late-June friendly takeover bid, but the Canadian producer has not dropped its interest.

If a deal is reached, the acquisition would give PotashCorp more supply-side flexibility, as it would include K+S' new Legacy mine being built in Saskatchewan.