MILLENNIAL OUTLOOK STEADY
By Mike Stickland,
IT IS difficult to forecast markets weeks ahead and even more tricky to predict movements for next year.
But perhaps most difficult of all is to look at a three-year time span. And that is exactly how long it is to the end of the millennium.
In the short term we have seen a dull spell, with too much fertiliser chasing too few buyers in Europe. And slow buying and selling on the world scene is creating a quiet market pattern.
What happens on the world market is a strong factor in the behaviour of our domestic market. In 1995 world shortages combined with domestic production hiccups to create the strongest market in years. Last year was very different.
One reason for world dullness in 1996 could have been the rise in Chinese domestic urea production. China has a programme that is already coming on stream to build a number of ammonia/urea plants to cut the need for imports.
Although longer-term forecasts are for nitrogenous fertiliser demands to outstrip supply, in the short term the ability of the Chinese to hold back from the market and buy slowly means they can avoid heating the market.
World capacity for N fertiliser production is, has been, and will probably be for some years, above world consumption. What makes the market rise is always a short-term imbalance. It remains to be seen whether the increase in demand from the rest of the world will create such imbalances during the next three years.
The next few months will see an imbalance while the UK market catches up. There are unsold stocks of imported fertiliser in stores and bigger stocks of UK domestic fertiliser unsold than last year, though smaller stocks than in most years.
Few traders have already booked cargoes for January, although there is probably plenty waiting to be shipped in the Baltic ports. As demand from France picks up and the weather starts to hamper shipping, a domestic shortage in February or March could develop, which could see prices rise again. But this will be less dramatic than in 1995.
World production of DAP (di-ammonium phosphate) is likely to fall below world demand in the next two or three years. Not only will this mean higher prices for DAP and so higher prices for blends, it will also mean NPK producers who use phosphoric acid will have an advantage.
There is adequate phosphoric acid production, but not enough downstream capacity at the phosphate plants. It is likely that the compounders will make base materials for blending, and that the cost of all phosphatic fertilisers will rise. An increased demand for phosphoric acid will also put pressure on triple superphosphate prices.
Potash demand is certainly going to be well covered by supply. It is unlikely that the world producers will be able to create enough control in the market to be able to push prices up much, even though PCS of Canada has bought Kali & Salz of Germany.
One of the main factors in European fertiliser pricing is the cost at which product comes out of Russia and the rest of the former Soviet Union. Those prices are controlled in two ways: Supply and demand with the customer, and the cost of production and shipment.
Occasionally we see product on the market that for some reason has lost all contact with reality. But eventually the real world always catches up – natural gas, rail freight and ship loading all cost money.
Periodically, Russian fertiliser becomes scarce because the gas producers or the government have made price demands which the market will not bear. For several years now there has been a price hike of this sort in January. We will probably see one this year.
In recent years the Russian government has tried to re-expand the Russian domestic fertiliser market. Russia needs much more food from its own farms. Last year domestic fertiliser consumption was double the year before and that was up on the year before that. It is still a fraction of the 1989 consumption – but as domestic consumption rises, there is less to export and world prices will go up.n
Fertiliser prices look set to remain on the level from now until the end of the century. Production changes in Russia and
China are the main reasons, explains independent
fertiliser broker and consultant Mike Stickland.
• Prices set to stabilise or only rise gently.
• Russian use will cut supply of cheap product.
• Chinese production reduces its buying on world market.
• Longer-term forecasts are for nitrogenous fertiliser demands to outstrip supply.