Phosphates: Weak rupee, 4Q acid deal hit producers

The $10/t P2O5 increase in the fourth-quarter phosphoric acid contract price agreed between Moroccan producer OCP and its Indian joint-venture phosphate producers will further erode margins for India's DAP producers, which have already been hit by a weak rupee.

The fourth-quarter settlement, at $768/t P2O5 cfr, reflects higher production costs for acid producers. Raw material costs for OCP have risen significantly from the third quarter. The North African sulphur price increased from an average of $122.5/t cfr in the second quarter to $137/t cfr for the third quarter, with spot prices rising to the mid-$150s/t cfr.

Ammonia costs for north African producers have risen by more than $110/t to $380/t cfr over the same period, according to Argus.

This will be scant relief to Indian producers that rely on imported phosphoric acid. Ammonia raw material costs have also increased from around $310/t cfr India at the end of June to nearly $400/t cfr now, while the rupee weakened through much of the third quarter and is currently at Rs73.6 to the US dollar. This leaves Indian producers of DAP facing a loss of Rs4,063/t ($55/t) before goods and services tax (GST) is refunded. The loss is reduced to almost $7/t, assuming the GST refund is made in a timely fashion.

India's domestic DAP production has fallen significantly in the current fertilizer year because of high raw material costs. Output was 1.8mn t in April-September, down by over 700,000t or nearly 30pc from the same period last year.

This has led to increased reliance on imported DAP. Argus projects that total imports will be around 5.3mn t in April-November 2018, up from 4.3mn t for the whole of the 2017-18 fertilizer year.

India has secured the vast majority of its DAP import requirements, which Argus estimates at 5.5mn t. And the late fourth quarter is traditionally the off-season in India as the market concentrates on distribution and application.