The coronavirus outbreak in China may provide additional short-term support to Brazilian phosphate values following a recent price recovery for that market.
China is a leading producer of phosphates, with output of around 13.7mn t in 2018. Close to 25pc of that was manufactured in Hubei province — a leading phosphate and NPK production area that is at the heart of the outbreak — by companies including Dongsheng, Xingfa and Yihua. Hubei also houses major NPK producers, including Yonfer (Xinyangfeng).
MAP 11-52, a key phosphate compound, rose from a $278/t mid-point at the end of December to $310/t cfr Brazil this week. Still, the range remains $115/t below the value traded a year ago and is close to historic lows.
The Chinese government has moved to lock down Hubei province amid the outbreak. Transportation across much of the province and adjacent regions has been halted, impacting the movement of phosphates, sulphur, and other fertilizer products.
The obstacles to output there could boost values globally, and possibly maintain Brazil's higher prices. But it is still too early to estimate long-term impacts, as the scenario could also limit Chinese demand for grains and phosphate, said Marcelo Mello, an INTL FCStone consultant who specializes in fertilizers.
Economists are already expecting a potential drop in China GDP of about 2pc this year if the virus spreads throughout the country. But it is still too soon to evaluate the real impacts, Mello said.
A further rise in MAP values could also be hindered by high inventories in Brazil. Although data presented by industry representatives show that stocks of phosphate compounds are approximately 6pc lower than last year, many market participants argue that imports have more than offset the fall in production.
Another factor that could pressure fertilizer prices is a sharp drop in grain prices at the Chicago Board of Trade. Soybean contracts for March reached $9.4425/bushel in early January but closed at $8.7625/bushel yesterday.
The lower soybean prices go, the lower demand for phosphates will be. The US is in the buying season for spring fertilizer applications, and its demand could impact farmer decisions for investing in the crops.
If the epidemic grows further, even the China-US first phase trade agreement could be at risk. The agreement includes China's promise to buy at least an additional $12.5bn in agricultural products in 2020. US agricultural Secretary Sonny Perdue this week said he does not know if the coronavirus will interfere in China's promises to buy more US products.
