jp morgan on china fertiliser tariffs

DJ China Tariff Move Could Lift Global Fertilizer Price-JPMorgan

CANBERRA (Dow Jones)--Surging global fertilizer prices, particularly urea, could go higher on reports of that extra export tariffs introduced by China recently will remain in place until Dec. 31, according to JPMorgan Asia-Pacific's equity research unit.
Beijing has also decided to apply special export duties on all non-fertilizer phosphate chemical and mineral products until Dec. 31, it said in a report issued late Friday. The move to preserve local supplies of raw materials was expected following significant damage to fertilizer production capacity from an earthquake in Sichuan province two weeks ago, it said.
"We expect the extensions of the current Chinese fertilizer tariffs would maintain pressure on the supply/demand balance and may generate increased pressure for higher prices," with current flat prices for diammonium phosphate reflecting a seasonal lull, it said.
Urea prices have surged in the past two months following the imposition of an additional 100% export tax on fertilizers by Beijing, taking the total export tax to
135%, Australia's biggest fertilizer manufacturer, Incitec Pivot Ltd. (IPL.AU), said Monday.
Stewart Murrihy, an Incitec Pivot spokesman, said the surcharge was imposed to ensure adequate crop nutrients are available to maintain domestic food supplies in China.
However, this had the immediate effect of virtually stopping urea exports from China, which exported almost 6 million tons of urea last year, representing 15% of traded global urea, he said.
"Taking this amount of product out of the market forced up global prices at a time of increasing fertilizer demand to meet the world food shortage," he said, noting that Australia pays world parity prices for fertilizers.
JPMorgan quoted diammonium phosphate last week in a range of US$1,162 to US$1,200 a metric ton, U.S. gulf freight-on-board bulk, unchanged from the previous week.
Fundamentals remain supportive and fertilizer industry contacts last week suggested the next direction for prices is upwards, it said.
Urea strengthened further, with prices quoted by JPMorgan in a range of US$620 to US$730 a ton, compared with a range US$580 to US$720 in the previous week.
The urea price has risen from US$458/ton on April 17 and US$388 on March 13, according to prices supplied by consultancy Fertecon.
Nitrogen and phosphate fertilizers are produced in the quake-affected province of Sichuan, according to the International Fertilizer Industry Association.
The earthquake has disrupted communications in the region, but JPMorgan said there have been reports that three phosphate rock mines were damaged, along with several artificial fertilizer plants and a major railway.
Around 50% of the 5 million to 6 million tons of fertilizer used in Australia each year is manufactured domestically, with the balance imported from a variety of overseas countries, according to the Fertilizer Industry Federation of Australia.
Super phosphate, manufactured from imported phosphate rock, makes up 50% of the domestically manufactured product sold in Australia.
In addition to domestic use, Australia exports between 200,000 and 400,000 tons of fertilizer each year, primarily from Incitec Pivot's ammonium phosphate plant in
North Queensland, according to the federation.

-By Ray Brindal, Dow Jones Newswires; 612-6208-0902; [email protected]

(END) Dow Jones Newswires
May 26, 2008 01:29 ET (05:29 GMT)
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Monday 26 May 2008 15:29:00.000 AEST