fertilizer prices rise. mak stands to gain, page-5

Wouldn't surprise to see China look to stop phosphate exports as they have willingly done in the past and as they are considering with nitrogen ... 2007-8 all over again. This time round we have the meat commodities and the fibre commodities all running up much higher.

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Urea to renew rally, as China frets over supplies
2 November 2010

Prices of urea, which have already risen by 50-% since June, look set to renew their rally if China extends restrictions on expors to underpin domestic supplies of the key nitrogen fertilizer. Credit Suisse flagged speculation that China may bring forward to as early as two weeks' time the start of a twice-yearly period of high export levies aimed at ensuring domestic supplies do not wear too thin. An announcement is expected "this week". The high-levy period has, in the past two years, not started until February 1, lasting until the end of June, with a further spell of restrictive taxation from mid-September to mid-October. A shift to a November 15 or December 1 start data, as has been speculated, would "reduce global export supply of urea by 10-15% in the first quarter of 2011? creating an acute supply shortage ahead of the spring planting season and a strong urea price environment", Credit Suisse analysts said.

'Ready to rally'

Prices of urea had already rallied on the news, adding $12 a tonne to $360 a tonne, at the Ukraine port of Yuznhy, during Friday, and reaching $370 a tonne in US Gulf of Mexico ports. The Yuznhy price fell to around $230 a tonne in June. "Urea prices appreciated sharply in August /September, consolidated in October and now seem ready to rally again," Credit Suisse said. Furthermore, even after their recent rise, urea was "highly attractively priced" relative to corn, with a further $115 a tonne needed to bring prices back to average levels, on a relative basis..

Warehouse shift

China's potential export clampdown follows restrictions placed on domestic nitrogen producers in the interests of meeting environmental goals, and saving on energy. Nitrogen fertilizers are energy intensive to make, using often natural gas or, in China's case, typically coal. However, a sudden clampdown would have a particularly strong effect, in cutting producers' time to build up stocks at bonded warehouses, through which urea can be sold at low-tax-rate prices throughout the year. "No bonded warehouse volumes equals no exports in the high-tax periods," Credit Suisse said.

"Furthermore, high export taxes would make Chinese urea unaffordable and buyers would have to source product from other already capacity-constrained producers." China exported about 1.2m tonnes of urea in the first three months of 2011, equivalent to about 14% of world supplies.

Share reactions

Credit Suisse said that the prospect of higher prices made it more certain about "outperform" ratings attributed to shares in Russia's Acron, US-based CF Industries and Canada's Agrium. The group restated a "neutral" rating in shares in Yara, and in Middle East-based Safco. Yara closed 0.7% lower at NOK306.00 in Oslo, with Agrium ending down 0.4% at Can$89.85 in Toronto, and CF Industries finishing down 0.9% at $121.39 in New York. END


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