FEED Business Worldwide - May, 2012
Will China's dicalcium phosphate price fall from grace?
by Alexander SONG in Shanghai
China's livestock market performance has been, to say the least, disappointing. Swine account for two-thirds of China's feed demand and their inventories have fallen by 3.5% since February. Given last year's disappointing aquaculture output and flat poultry numbers for over six months, the demand for feed and feed-related supplements has sagged.
Phosphorous shortage, road closures defy slack feed consumption
Nonetheless, the country's calcium phosphate market seemed to disregard the above weak fundamentals and lacklustre feed demand. During the first three months of this year, Dicalcium phosphate (DCP) prices stood firm, with indications of further inflationary potential ahead. As of the early second quarter, domestic DCP prices were nearly 40% above last March's price record, while export price quotes were up by 30%.
The main factor behind DCP's strong performance is the limited supply of feedstock phosphorus ore: A scarcity of phosphorus bearing rocks results in cost-push DCP price inflation that defies slack feed demand. The question is: will this underlying phosphate shortage be enough to keep DCP prices at their current high level? There are several angles to this question's answer.
Cost push dynamics dominate the second quarter forecast but these will give way to demand-pull factors in the third quarter. Spring ploughing in most parts of China was being delayed this year by the prolonged cold winter weather. This shortened DAP's sales season and curtailed its demand. In addition, compared with previous years, the demand for phosphate fertilizer has decreased amid fierce competition from a large variety of nitrogenous fertilizer substitutes. Fertiliser producers who had accumulated phosphate ores earlier were therefore under pressure to produce and sell before spring ploughing ends, giving overseas buyers the opportunity to slash prices.
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