The Chinese State Department officially announced on Friday the revised export taxes on fertilisers. For urea, the revised export tariff from 1-30 September is 185% (up from 135%) and from October 1 to December 31 is 175%. For DAP/MAP, the export tax remains at 135% to September 31 and declines to 120% from October 1 to end December. In addition, a temporary export tariff of RMB 460/t (~US$67/t) will be imposed on all fertiliser exports from September 1 until the end of 2008. Given that China is a major exporter of fertilisers, this announcement has positive implications for both the nitrogen and phosphate fertiliser markets.
In a normal year, China would account for ~25% of global production and 15-20% of global exports of phosphate fertilisers. Since the implementation of the export duties in May, DAP exports have declined considerably (down 33% in the 1H08). In our view, the extension of these taxes is likely to maintain export volumes well below "normal" levels, thus keeping the global market relatively tight and supporting prices within the US$1,100-1,200/t. For IPL, we assume DAP prices of US$1,000/t in FY09, which is US$155 below spot levels. If we were to mark to market our DAP assumptions we would be upgrading our FY09E NPAT by 15%.
This pattern of increasing export tariffs is typically seen in situations where the government of the country of origin expects future demand excess and wants to conserve reserves in anticipation of that. IIRC this is similar to India and their reluctance to export their iron ore, culminating in the implementation of an iron ore export tax in 2007. We all know where the iron ore price and demand has gone since then.
The impact of future phosphate (and iron ore!) demand from Chindia should not be underestimated by us - it certainly is being considered over there!
Cheers UIO
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