July 12, 2013
Due to its very low price offer, Russia's Phosagro has no plans to renew a contract to supply phosphate fertiliser to India.
Analysts estimate that Phosagro, the world's no. two producer of phosphate fertilisers, supplied around 400,000 tonnes of dimmonium phosphate (DAP) to India under its 2012 contract.
India, seeking to boost rice crops to feed its growing population, traditionally sets a floor on prices of fertilisers such as DAP. Last year Phosagro's revenue from India amounted to around RUB7.5 billion (US$231 million), down from RUB12 billion (US$370 million) in 2011.
The price offered by New Delhi is too low to resume deliveries, Deputy Chief Executive Andrei Guriev said in an interview. He cited spot fertiliser prices in India at around US$485/tonne at the beginning of July, compared with contracts signed not long ago for US$515.
"India is a specific market where the buyers are strongly consolidated and fertiliser producers find themselves facing a monopsony (buyer's market)," he said in an interview.
The company plans to redirect those volumes to Russia's domestic market, which it sees as a priority, and also to Southeast Asia, Latin America, Africa and Europe, said Guriev, son of Phosagro's billionaire majority owner Andrey Guriev.
In May, rival Phoschem, which exports North American fertiliser for Mosaic Co and Potash Corp of Saskatchewan, agreed to sell 400,000 tonnes of DAP to India, but did not reveal the exact price. Analysts say the contract would have been priced at below US$500/tonne and that Phosagro could have counted on being paid something similar. Previous contracts were at US$580/tonne.
The firm plans to increase shipments to Asia, in particular Thailand, Vietnam and Malaysia, to 600,000 tonnes in 2013, according to Guriev. The firm previously shipped only small volumes to Southeast Asia.
It is also interested in the amount of foreign investment pouring into African agriculture. Phosagro, which sold 247,400 tonnes of nitrogen, phosphorus and potassium (NPK) to Africa in 2012, plans to roughly double exports to the region this year, Guriev said. Its fertiliser shipments to Europe could rise 40% to 600,000 tonnes, he added.
Phosphate prices have stabilised at around US$465 to US$485/tonne in the Black Sea on a free-on-board (FOB) basis and could rise in September depending on the state of global inventories and India's monsoon season, Guriev said.
In the short term, phosphate demand should outpace overall demand for fertilisers, while Southeast Asia, South Asia and South America are likely to be the strongest growth markets in 2014, he said.
Russian fertiliser companies, whose profits were hit by adverse weather conditions for crops in the first part of 2013, expect the market to improve in general, with demand in South America particularly strong.
According to Phosagro estimates, the global fertiliser market is growing at around 3% per year, while in Russia production could reach over 6% growth annually. Shares in Phosagro, which have risen around 50% since the start of 2012, were 1.4% up on the day.