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Phosagro Sees Phosphate Market Ready for Recovery

Phosagro OJSC, the world’s third-largest phosphate fertilizer maker, sees the market overcoming a “scary” start to the year as Brazilian farmers use improving profits to buy more soil nutrients.

Average prices of diammonium phosphate, a benchmark, will probably rise to $380 a metric ton in Tampa, Florida, according to the company’s Chief Executive Officer Andrey Guryev. That would be up from about $360 now. James O’Rourke, CEO of rival Mosaic Co., earlier this month said phosphate demand will reach a record this year.

Global phosphate fertilizer prices touched a two-year low in January and February, after China flooded the market following the removal of an export tax and as farmers held off buying nutrients. Prices in some regions then rose as the Asian nation and other firms curbed unprofitable output. Demand from Brazil, among the five biggest users, may jump 34 percent this year after a weaker real helped to cut farmers’ costs and boost their profits, Guryev said.

“The situation at the start of the year looked scary,” as turmoil in Chinese markets also contributed to the price collapse, Guryev said in an interview in Moscow. “All the bad things which could have happened, happened last year, so prices should bounce back.”

Brazil Market

Phosagro controls about 20 percent of Brazil’s market for imported mono-ammonium phosphate fertilizers. So-called MAP and DAP are among the most popular types of nutrients. The Moscow-based company competes with firms including North America’s Mosaic and Potash Corp. of Saskatchewan Inc.

Phosagro’s forecast “would be a very good level for the market,” Elena Sakhnova, an analyst at VTB Capital, said by phone. “Last year Phosagro had an accurate market outlook, predicting huge Indian demand.”

Brazilian farmers may import up to 6.7 million metric tons of phosphate fertilizers this year, up from about 5 million in 2015, when the country’s economic crisis cut demand, Guryev said. Growers are also benefiting lower energy prices that have curbed input costs, while crop prices remain stable and credit issues in Brazil have eased, he said. The price in Brazil has recovered to $365 per ton, Guryev said. It was as low as $340 in January.

Argentina, which cut purchases to about 600,000 tons last year, is also increasing demand again and already bought 300,000 tons in the first quarter, he said. While European usage may be little changed, consumption in Asia should be strong, Phosagro predicts. India boosted phosphate-nutrient imports by about 50 percent to 6 million tons last year and may buy a similar amount in 2016, Guryev said.

Cutting Output

Prices should also be supported by unprofitable producers in China and Europe closing output, he said. In contrast, Phosagro, whose cash costs of about $128 a ton are half of the industry average, plans to increase supply by about 5 percent this year, Guryev said.

A weaker ruble has helped reduce Phosagro’s costs, while technology has allowed it to process phosphate from ore left over from past production, reducing the need to mine it. It has 30 million tons of ore, enough for seven years of processing, the CEO said.

Not all of the extra output will be shipped abroad as demand is growing from Russian farmers who have benefited from the ruble’s drop, Guryev said. The company has agreed to limit price increases for local farmers to 5 percent by the end of the sowing season compared with January levels, he said.

The company said on Wednesday its earnings before interest taxes, depreciation and amortization more then doubled in 2015 to 82.5 billion rubles ($1.2 billion). Revenue increased 54 percent.

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