export tax remains in china on dap

Thanks sgoni once again ....export tax reduced from 135% to 120% on phosphatic fertilizers.

Incitec Pivot Limited / Orica
Chinese export tax extension is positive

Event
! The Chinese Government released the revised export taxes for fertilisers. For
urea, the tax is 185% through to the end of September, then 175% through to
the end of December 2008 (135% previously). For phosphates, China
imposed a revised 120% export tax rate through to the end of the year (135%
previously). There is also a special 150% export tax on ammonium nitrate
(AN) from 1 September–31 December.
Impact
! 175% export tax on urea and 120% tax on phosphates will keep supply
tight. The urea export tax hike was as expected and to some extent reflects
the upward move in global urea prices (Middle East urea prices up +96% in
the last four months to US$834/t). The 120% phosphate tax, though lower
than the previous 135%, will continue to limit Chinese DAP exports. Total
MAP/DAP Chinese exports were around 3.8mt in CY07 and for the year to
date are 1.4mt or flat on pcp. If we assume that 200kt of exports per month for
the rest of the year total 2008, exports would be some 1.2mt lower than last
year which represents 5% of the global traded DAP market of 20mt.
! The DAP price is subdued at $1155/t. Indian demand is strong with imports
of some 4.3–4.5mt for 2008 (assuming a 12% growth rate in DAP application).
However, DAP demand in Pakistan and Latin America is soft with some
demand destruction evident. Part of this is timing related with a strong soy
crop expected in Brazil, US winter demand still to emerge and global DAP
demand/supply remaining tight. The cash cost for unintegrated DAP
producers is US$1240–1290/t which remains supportive for DAP prices
(ammonia stronger, sulphur weaker). We currently forecast an average DAP
price of US$950/t in FY09 and US$1049/t in FY10. Our urea price forecast for
FY09 looks extremely conservative with US$400/t in FY09 (versus US$450/t
in FY08).
! 150% export tax on AN (135% previously) is positive for both ORI and
IPL. China has previously exported some 200kt of AN, and the tax will
continue to keep this supply out of the market and further tighten AN
demand/supply fundamentals. This is in turn positive for Australian AN prices
with current spot prices >$800/t. This compares to ORI’s legacy average AN
contract price of $500/t. We have factored in an increase in ORI’s realised
Australasian AN pricing to $700/t in FY11 which drives our double-digit
earnings growth forecasts for ORI.
Earnings revision
! No change.
Price catalyst
! IPL 12-month price target: A$190.76 based on a DCF methodology.
! ORI 12-month price target: A$28.84 based on a Sum of Parts methodology.
! Catalyst: ORI and IPL FY08 results 10 November and 17 November
respectively.
Action and recommendation
! We retain our Outperform on IPL with a $190.76 price target. We also have an
Outperform on Orica with a $28.84 price target.