By James Wellstead — Exclusive to Potash Investing News
Despite the recent impasse between farmers and fertilizer producers, rising phosphate fertilizer prices are not anticipated to last beyond spring.
As the planting season begins in major markets, analysts are predicting that fertilizer prices will move higher in the short term before coming back down by summer. The fall should cover all fertilizers, including phosphate, potash, and nitrogen.
David Asbridge, President and senior economist of NPK Fertilizer Advisory Services, recently stated that "[w]hen you have high prices you tend to bring more production capacity on, and that's what we're seeing.”
Diammonium phosphate (DAP), the most commonly used phosphate fertilizer and primary end product of phosphate rock, has seen prices trending downwards since August of 2011 on news of expanding production and slowing demand due to fertilizer and food price inflation around the world.
Recent news of expansion plans for a number of phosphate projects is one of the factors expected to drive phosphate fertilizer prices into the summer and in the coming years.
State-controlled Saudi Arabian Mining Co. (Maaden) is one company with a major expansion planned. It has announced the approval of the $5.6 billion phosphate mine Umm Wual near the northern city of Waad Al-Shimal City for Mining Industries.
Industry consulting firm Global Industry Analysts, Inc. recently projected that the global phosphate market could hit 73.9 million metric tons by 2017 with extraction peaking by 2030.
It's news like this that is leading Asbridge to state that "[i]t's a good possibility that 2013 [phosphate] prices could be even lower than they are now."
Falling prices welcomed by farmers
In developing countries with larger farming sectors, fertilizer price declines are welcome news to those whose livelihoods are directly impacted by phosphate prices.
Falling prices are one of the reasons India's government recently announced that it would reduce DAP subsidies and cut phosphate nutrient subsidies by 27.4 percent and 32.6 percent respectively. Subsidies for potash and nitrogen were slashed as well, also in response to over-application of fertilizers and the rising cost of the subsidies for the government.
Despite the potential increase in prices following subsidy cuts, phosphate industry officials said they would not raise prices when subsidies are removed. Instead, Indian Farmers Fertiliser Co-operative managing director U.S. Awasthi said, "we will try to secure imported raw material supplies at lower price."
Less sanguine about the actions of the Indian government was John Hughes, equities analyst with Desjardins Securities. Hughes projected that DAP prices would actually increase by 45 percent for Indian farmers, leading him to believe that “this is a negative for the DAP and potash markets, and for the shares of Potash Corporation and Agrium Inc.”
Agrium (TSX:AGU) and PotashCorp (TSX:POT) rely on India for approximately two and four percent of their 2011 sales, while India relied on international markets for about 90 percent of its phosphate in 2011 and for 49 percent of world DAP shipments in 2010, according to the International Fertilizer Industry Association.
A number of companies are moving toward supplying global markets with phosphate in the coming years.
Stonegate Agricom Ltd. (TSX:ST) recently announced that it received approval from the Peruvian Ministry of Energy and Mines for its semi-detailed Environmental Impact Assessment related to the Category 2 exploration program. Stonegate completed its Category 1 exploration drilling program at its Peruvian site in the second quarter of 2011. The second phase of exploration will conduct approximately 18,000 meters of diamond core drilling and 19 exploration trenches in the run up to its pre-feasibility study.MBAC Fertilizer Corp. (TSX: MBC) was active in bolstering its resource estimate for its 100 percent owned Santana Phosphate Project in Brazil. The updated mineral resource estimate shows indicated resources of 66.1 MT at 10.5 percent P 2O 5 and an inferred resource of 21.8 MT at 7.9 percent P 2O 5 at a 3 percent P 2O 5 cut-off.
Antenor Silva, Vice Chairman and CEO of MBAC, stated that "these results have exceeded our expectations and confirm our belief that Santana is a significant phosphate deposit due to its grades and unique location.”
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.