Phosphate pricing has been on a general slide since roughly the first of December 2012. Upstream, producers report a variety of factors nudging phosphate pricing lower into spring 2014. According to Mosaic, the average DAP price in fiscal 2012 was $555.00/ton and while the year-end average for fiscal 2013 was $513.00, pricing in the fourth quarter 2013 continues to demonstrate the slide, at $483.00/ton. This downside potential is expected to last well into 2014 as operating rates remain in the high 70's, indicating a buyer's market for P.
Potash is also expected to fall and China and India are again dragging their feet to sign a contract with Canadian enterprises. This has had a dramatic effect on pricing in the last year and the price pressure on the global scene is expected to remain in place, particularly with FSU sources providing K to China and India via BPC rail. K from FSU sources allowed for the price holdout on Canada, which swelled inventories of both P&K in Saskatchewan.
Production curtailments are in place for the summer, and FSU sources report they will cut back on sendouts of K to China, but operating rates in Canada are still near 80%. This juxtaposition between Canadian and FSU sources will keep the cards in China's hands, and until K escapes oversupply, prices will struggle to find strength.
Despite the fertilizer financial crisis of 2008, the industry has moved forward with brownfield expansions and capacity upgrades, looking ahead to an expected annual 3% increase in NPK demand. Mosaic did defer 2 million of the 5 million tons of production capacity it had originally banked on in 2009, but the added 3 million tons have had an impact in favor of end users.
Both P&K are in oversupplied conditions at present, and industry experts believe the combination of forces holding prices lower may last up to five years. Add to that a government subsidy quagmire in India that favors N over P&K so disproportionately, that demand for P&K is projected at a minimum until the subsidy guidelines are adjusted. China continues it's own imbalance favoring N, but as Chinese agronomy improves, demand for P&K will spike. The question is when...
Some believe it will take an overhaul of the Indian subsidy program to free the flow of a balanced nutrient profile into that country, but change on that level is reliant on bureaucracy and will take several years to unravel. China could take up to ten years to balance its thinking on nutrient applications and in the meantime, demand there will continue to be low.
The industry believes P&K are both in oversupply, and with lackluster operating rates, and marginal global demand, prices are expected to continue to move lower for at least the next twelve months. We will continue to watch these prices carefully, but the expectations for P&K are favorable production rates coupled with global oversupply. Prices will rebound with demand, but the overall trend for P&K is downward for the next 4-5 years.