Viewpoint: Phosphate eyes spring rally after fizzle

The domestic phosphate market continues to adapt to lower output, a trend that is poised to linger into the first quarter of 2019 despite carryover volumes and rising imports.

Demand is expected to be strong for the 2019-20 planting season on 3mn acre increases in corn, to 92mn acres, and wheat, to 51mn acres, according to the US Department of Agriculture (USDA). The rises increase Argus' estimate for phosphate consumption by nearly 100,000st P2O5 from 2018 to 8.74mn st of P2O5 in 2019, more than offsetting the anticipated loss stemming from a 7mn acre drop in soybeans to 82.5mn acres.

Stronger demand amid lower domestic production provides another layer of market support, and could potentially offset the negative impact of heavy fall carryover. US phosphate production through the first three quarters of 2018 declined by 12pc year over year to 6.8mn st following Mosaic's idling of its 1.7mn t/yr Plant City phosphate facility in Florida. But headwinds persist that would limit market upside, as the large DAP and MAP import line-up expected at the end of 2018 could exacerbate already heavy warehouse inventories in the Midwest bolstered by an estimated 20-30pc year-over-year decline in fall applications amid inclement weather. The elevated stock levels have already pushed Nola DAP and MAP values down by more than $20/st from their highs in October.

Imports of DAP and MAP are on course to set new record highs as importers have stepped in to try and replace lost production from Mosaic. Year-to-date DAP imports are estimated at more than 829,000t January-September, up by 8pc from the previous year, according to US trade data. Year-to-date MAP imports climbed by 12pc from a year prior to 1.1mn t during the same period. The loss in domestic output has also caused a drop in sells overseas as year-to-date DAP exports declined by 34pc to nearly 837,000t, while MAP exports fell by 12pc year-over-year to 1.6mn t.

Global phosphate supplies are tight going into 2019, with low stocks in Brazil and lower availability from key supply regions.

OCP continues to run its fourth granulation unit at Jorf Lasfar, Morocco, at very low rates while committing half of its first-quarter availability to African destinations. Additionally, high seas have forced several temporary closures of the port of Jorf Lasfar since October, limiting export capabilities.

Argus estimates Chinese producers continue to operate at 50-70pc of capacity, which could result in a 1mn t year-over-year decline in output to 15mn t in 2018. Lower production in China is expected to offset current rates at Ma'aden's 3mn t/yr Wa'ad al-Shamal facility in Saudi Arabia. Argus estimates the company is operating at 60pc of capacity.

While the fundamental data suggest a strong spring season for phosphate, the market's direction will depend on a number of outside factors. This includes trade relations with China and credit access for farmers as they will heavily influence crop input decisions.