Currency dip unlikely to spur China fertilizer trade

The steep depreciation of the Chinese yuan against the US dollar amid growing trade tensions is unlikely to affect fertilizer trade significantly in the short term as importers and exporters face existing constraints.

This week the yuan depreciated to 7.05 against the dollar, the lowest level for over 10 years.

In theory this should boost exports, but market participants do not expect a surge in sales, as existing market constraints remain and it is unclear how long the exchange rate will stay at this level.

Some Chinese trading firms buying in yuan and selling on to international trading firms in US dollar will be the main beneficiaries in the short term.

Based on a $280/t fob export, the currency depreciation has added around $6.40/t to suppliers' theoretical returns over the month and nearer $13.50/t since the start of the second quarter.

But Chinese urea exporters are already heavily committed in the short term with shipments to India. Trading firms looking for supplies into Latin American markets are pushing for lower numbers, which will limit further export sales in the short term.

DAP exporters have only south Asian markets as sizeable potential sales outlets in the short term and again face ever lower price bids amid weak market fundamentals.

For sulphur importers, the steep deprecation has increased the uncertainty in a market already facing two-year low prices and high stocks. Some importer said it will see them buy even more cautiously, perhaps delaying purchases.

But in the main it will be China's Yangtze river sulphur trading firms that face the most uncertainty as they buy in US dollars and sell on in yuan from the ports.

Sharp exchange rate changes have been a feature of US-China trade tensions so many have already offset risks or locked in exchange rates for trading purposes. But banks are becoming more reluctant to lock in rates for long periods amid the severe volatility.