Viewpoint: Tariffs will sustain US phosphate premium

Duty-driven supply tightness should sustain higher US MAP and DAP prices ahead of the spring as importers rely on non-traditional sources whose availability may fall short.

US supply strain is likely to linger into the spring barring a shift in product allocation by domestic producers. But producers, particularly Mosaic, are unlikely to jeopardize offshore market share prior to the US Department of Commerce in April finalizing — or altering — import duties on Moroccan and Russian phosphates.

Higher prices are likely in the meantime as importers struggle to source adequate offshore volumes outside recently dutied Morocco and Russia, which previously accounted for a combined 80pc of US MAP and DAP imports.

Shipments from non-traditional suppliers such as Egypt, Jordan and Australia were unable to fill the void in tonnage since July. Combined MAP and DAP imports fell by 43pc from July-December, despite the additional suppliers according to Argus estimates.

Tight overseas export availability is poised to disproportionately affect MAP imports, which fell by an estimated 62pc on the year from July-December. Argus estimates about 60-70pc of global MAP export access has been blocked off by the duties and previously levied tariffs on Chinese product. It remains unclear whether remaining producers will have the capacity to ship to the US next year, which could mean diverting shipments away from their traditional markets in order to capitalize on potentially temporary higher netbacks from the US.

Strategy shifts unlikely

Phosphate producers both offshore and at home will be hesitant to make large adjustments in commercial strategy based on preliminary duties alone, market participants estimate. This minimizes the likelihood of global trade flows adjusting and adequately supplying the US before the final ruling on 1 April.

MAP prices have risen by upward 10pc on anticipated supply tightness since the Department of Commerce levied duties on 24 November. Rising prices and tight supplies will likely widen the price spread from Nola to western Canada, where growers previously heavily relied on Moroccan and Russian imports through the US. While MAP is predominately consumed in the fall by the US, market participants continue to speculate on how domestic producers will allocate limited tons between the two markets in the spring, the sole window for applications in western Canada.

January MAP barges have traded as high as $435/st fob Nola. At $39/st, recent January trade marks the highest price spread to DAP since September 2014, potentially prompting typical MAP buyers to switch to DAP or TSP. But a move to the former could similarly struggle because of reduced offshore tonnage, and TSP imports from the world's largest producer — Morocco's OCP — would also be subject to duties.

Alternative DAP supplies proved easier in the fall to source, but supply-side price support remains likely as Argus estimates tonnage from July-December still lagged the prior year by 9pc.

Sustained rapid price appreciation could return the US Gulf coast as a competitive destination for OCP and Russia's PhosAgro, subject to the lowest duties at 23.46pc and 20.94pc, respectively. But the producers could still be hesitant to resume shipments amid the ongoing import duties investigation.

By Jasmine Davis