Extracts from Edited Transcript of Mosaic Co earnings conference call on Tuesday, February 7, 2017 at 2:00:00pm GMT
"Let me articulate where I think we are in the cycle as we head into 2017. We are confident we have seen the bottom in both phosphate and potash prices, which are now gradually recovering from cyclical lows. We are well-positioned to benefit from that recovery."
"Frankly, overall the customers are accepting the changes that are going on in the phosphate market -- in fact, are probably more concerned about availability for their usage.
In the last 30 days, or last 45 days, we've seen phosphate prices in North America increase $40 a short ton. We've seen phosphate prices for Tampa go up $35 a ton. You've seen China prices go up $70 a ton. With all of this, you're always selling into a market that's appreciating. As Joc says, we're well sold into the first quarter, and we're very positive about what we expect realizations to be in the second quarter."
"As we mentioned in some of the prepared remarks, the government has reported 70% of phosphate companies there are losing money. We do expect further reductions in both production and exports, and it translates into about a 2-million ton drop in exports in our view in 2017."
"Moving to phosphates, as we said many times, China is the key swing factor, and recent developments there look increasingly positive for the global market. Recent statistics and news reports indicate that the widely expected restructuring of the phosphate sector is under way. Production and exports declined last year in response to both lower prices, as well as the recent government crack-down on excessive emissions of air and water effluents.
Chinese customs statistics show that exports of the leading phosphate products declined 18% last year, a drop of 2.1 million tons from the record volume a year ago. The government reported that 70% of Chinese producers lost money last year, so lower prices are forcing cut-backs in output."
"In addition, some producers have temporarily shut down as a result of actual or expected environmental audits. The Chinese government is becoming increasingly responsive to the public's demand for improved air and water quality. As a result, we project that Chinese exports of the leading phosphate products will decline again this year to 7 to 8 million tons. In addition, it is important to note that tighter environmental regulations and pollution taxes have and will impact even the low-cost producers, which in turn is raising the industry cost curve. This is an evolving situation that merits close monitoring this year."
"Just like in potash, finished product prices have quickly reflected lower output and reduced product availability. The DAP price FOB China Port recently traded at $360 per ton, up $70 per ton from just a couple of months earlier. Looking ahead, global shipments of the leading phosphate products are projected to climb to 66 to 68 million tons in 2017, up from an estimated 66 million tons in 2016."
"A key feature of the phosphate outlook is continued broad-based demand growth. In addition to expected gains in the big import markets like Brazil and India, significant demand is emerging from other regions, including Africa, Argentina, the former Soviet Union, and Southeast Asia. Demand growth, combined with an estimated decline of Chinese exports, is expected to increase industry stripping margins from the lows of 2016."
"In summary, prospects for the global phosphate and potash markets look positive given these recent developments. Prices are moving up, and we expect that this momentum will continue this year."
"Second, the strong sales volumes during the quarter clearly helped establish some price momentum. Even with the high volumes, dealer inventories were low coming out of the fall in North America, so we continue to expect strong global demand in 2017. Importantly, we have seen meaningful reductions in global capacity and production in both potash and phosphates."
AEV Price at posting:
11.5¢ Sentiment: Buy Disclosure: Held
(20min delay)