Fertilizer market outlook: potash prices to rise in 2019 but urea and phosphates remain subdued

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This blog is the seventh in a series of nine blogs on commodity market developments, elaborating on themes discussed in the latest edition of the World Bank’s Commodity Markets Outlook.


Fertilizer prices declined 5.4 percent in the first quarter of 2019 after three consecutive quarterly increases, with urea and DAP (diammonium phosphate) prices experiencing significant price drops. The World Bank’s Fertilizer Price Index is projected to recover and gain 4.8 percent in 2019, according to the latest Commodity Markets Outlook. This largely reflects an increase in MOP (potassium chloride) prices, while urea prices are forecast to remain relatively unchanged and DAP prices to fall. Risks to the outlook include sanctions in Iran, trade tensions, supply disruptions, and uncertainty over agricultural production, input costs, and environmental policies.


Fertilizer Price Index

 

Urea, DAP, and MOP prices

 

Risks to the outlook

Risk # 1: Iran sanctions

Last year, the United States provided several large buyers of Iranian urea six-month waivers from the re-imposition of sanctions. These expired in May 2019. In the absence of renewed exemptions, the sanctions are expected to have a material impact on the urea market as Iran accounts for about 6 percent of global urea exports. The extent of the impact depends on how buyers manage workarounds to the sanctions. 


Risk # 2: U.S.-China trade tensions

Further escalation of trade tensions could amplify trade diversion and crop planting patterns, and hence affect the relative demand for fertilizers. Following the imposition of a 25 percent tariff in July 2018 by China on soybean imports from the United States, importers in China have turned to suppliers from Argentina and Brazil while U.S. farmers have substituted soybean plantings with corn, which is a nitrogen-intensive crop.

U.S. agricultural area harvested

 

Risk # 3: Agricultural production

Fertilizer prices (and hence, demand) are also subject to uncertainty around agricultural production. Downside price risks emanate from worsening weather conditions and the African Swine Fever outbreak (see earlier blog on food prices). Upside risks include the possibility of another big harvest this year in the Southern Hemisphere, which has recorded bumper crops in recent years. Fertilizer application in North America could also pick up in the spring season following limited application last fall due to early snow. Lastly, production decisions in the United States could be impacted by the recently announced $16 billion support program, most of which is expected to take place in the form of direct transfers. 

Fertilizer demand growth


Risk # 4: Input costs

Natural gas prices, a feedstock cost in the production of nitrogen fertilizers, are projected to recover from current levels. However, there is considerable near-term uncertainty on how prices adjust to the anticipated increase in liquefied natural gas capacity that could alter the market composition (see earlier blog on natural gas).

Sulfur prices, a raw material cost in the production of phosphate fertilizers, may be impacted by International Maritime Organization regulations mandating sulfur content in seaborne vessel bunker fuels. Price directions depend on whether shippers predominantly choose to comply by installing scrubbers or by switching to blended fuels. 

Fertilizer input costs

 

Risk # 5: Environmental policies

Stringent environmental policies have led to plant closures and sharp reductions in urea and DAP exports from China—the world’s largest nitrogen and phosphates fertilizer producer. Despite the environmental restrictions, exports from China increased in the fourth quarter of 2018. Although Chinese urea exports remained robust through the first four months of 2019, stricter enforcements could curtail production.

China net exports of fertilizers


Risk # 6: Supply disruptions

Steeper-than-expected supply bottlenecks present an upside price risk. After delayed ramp-ups in new capacity, phosphates production in Morocco and Saudi Arabia has risen. On the other hand, the potash market remains hampered by production outages; supply from new facilities in Canada, Russia, and Turkmenistan have also fallen short of market expectations. 

Authors

John Baffes

Senior Agriculture Economist, Development Economics Prospects Group

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