By Ibi Idoniboye – Lead Phosphate and NPK Analyst
ibi.idoniboye@integer-research.com

Phosphates market in 2016: oversupply, disappointing demand, weak pricing and margins

Phosphates producers experienced a tough year in 2016. Global oversupply as well as falling input costs had a significant effect on all phosphate prices, which dropped at all the key hubs throughout the year. The North African DAP benchmark average went from US$445/tonne FOB in January 2016 to US$328/tonne FOB in December 2016. This pressure on the finished phosphate market was also felt in upstream products with Q4 2016 phosphoric acid contracts between OCP and its Indian partners settled at US$580/tonne CFR, a reduction of US$135 on the Q1 2016 price.

The Moroccan phosphate rock benchmark, which had been flat at US$132/tonne FOB since Q2 2015, succumbed to pressure from Indian importers and averaged US$103/tonne FOB by year-end with the downward correction beginning in Q3 2016, lagging the dynamics of the finished phosphates market by several months.

China entered 2016 with relatively high finished phosphates inventories. Producers were running at relatively buoyant capacity utilisation following a loosening of DAP/MAP export tariffs in 2015, which the government continued through 2016.  Producers had expected to see solid Chinese export business, but were disappointed by weaker than expected export demand in key markets. Producers were forced to reduce export expectations and cut production. Chinese producers at the higher end of the global supply curve saw prices drop to breakeven or below, and exports from China were the main source of volume adjustment to balance the international market.

Import demand from India disappointed, as farmers in the world’s chief DAP importer were satisfied through domestic inventories. This helped strengthen the negotiating position of Indian phosphate importers, particularly considering the keen competition among exporters for Indian volumes.

The Brazilian MAP import market was very subdued through 2015, under the weight of economic weakness and political uncertainty, a situation that we expected to improve through 2016. The Brazilian real stabilised against the US dollar as economic confidence improved somewhat. MAP import demand recovered somewhat and for the first ten months of 2016, MAP imports were up 9% y-o-y, but this did not translate to higher MAP prices, due to the increased competition between exporters from North America, North Africa, Russia and China.

Meanwhile, OCP continued its capacity expansion ramp-up in Morocco, inaugurating the second of four 1million tpy integrated phosphate plants at its Jorf Lasfar hub in H1 2016, with the remaining capacity to come online in 2017.

On the M&A front, three of the most significant developments occurred in the Americas; In September, Anglo American announced the sale of its Brazilian Niobium and Phosphates business unit to China Molydenum in a deal believed to be in the region of US$1.5 billion; Mosaic will buy Vale’s fertilizer assets in Brazil and Peru for US$1.25billion, while, in North America, Agrium and PotashCorp announced a merger of equals, both due to take place in 2017.

Related research from Integer

The Phosphate Cost and Profit Margin Service >>

• Discover what the production costs are for each producer, what prices and margins they achieve and how these are likely to change in the future
• Identify the junior miners’ likely positions on the cost curve
• Uncover how much new capacity (greenfield and brownfield) – is likely to be added in the medium term
• Learn how phosphate demand, supply and pricing will evolve in the next 10 years
• Incorporate the comprehensive datasets into your planning and use them to inform and support your decision making

Global NPK Supply, Demand and Trade Database  >>                                                        

• Discover the size of the market 
• Gain insight into global trade flows
• Reveal current and historical supply and demand
• Incorporate the comprehensive datasets into your planning and use them to inform and support your decision making