For people new to the inorganic feed phosphate (IFP) market, it’s hard to find any logic! This market is highly volatile, and it is hard to find a good proxy or benchmark to determine when it’s the right time to close a deal. For example, when it comes to Polish imports, the price range of monocalcium phosphate (MCP) is wide: from below €200/tonne up to €1,400/tonne!*
Of course, if we compare feed phosphate prices with prices for phosphate fertilizers such as diammonium phosphate (DAP), we can see they follow the same basic trend, but there is no clear correlation between fertilizer and feed phosphates. These markets have different dynamics, although they share the same fundamentals.
Access to phosphorous is limited to a few regions in the world, with most of the reserves in North Africa. Many key agricultural regions depend on the import of phosphorous in one form or another (phosphate rock, phosphoric acid, DAP, TSP, etc).
Production of phosphates is increasingly concentrated within vertically-integrated producers that are not only expanding their production capacities but also investing in their own distribution systems. This is what we mean when we talk about mine-to-market strategies.
For instance, OCP Group recently confirmed its strategy to expand its production capacity from 12 to 20 million tonnes/year within five years, while PhosAgro has set itself a capital expenditure budget of nearly $950 million for 2023, including significant investments in expanding production at Russian phosphate assets.
On the supply side, there is not much difference between fertilizer IFP production; vertical integration is becoming the norm.
It’s on the demand side that we can observe different dynamics.
On the one hand, fertilizer production and distribution is highly regulated. It is part of national food security strategies. For instance, India massively subsidises fertilizer purchases, while China controls exports with export taxes; Russia, meanwhile, has had export quotas on nitrogen fertilizers in place since November 2021. Elsewhere in the northern hemisphere, protectionism and direct support for national production is highly strategic.
On the other hand, the IFP market is often beyond the scope of regulations, due to its marginal size in comparison with the fertilizer market, and is thus relatively free.
Another point to consider is the seasonality of fertilizer demand, which has a great impact on prices, whereas IFP demand is rather stable over time as animals need to be fed all year round.
Trends in consumption are also heading in opposite directions: fertilizer demand is growing in line with world population growth and food needs. IFP demand, on the contrary, tends to decrease because of the use of phytase, changes in the formulation matrix, and the use of more digestible sources of IFP (e.g. MCP instead of DCP); some of these changes have been discussed previously on Feedinfo.
The role of phosphoric acid in setting IFP prices
Therefore, using fertilizer markets as a basis for understanding IFP movements is not always appropriate. Meanwhile, a benchmark often used for IFP is the phosphoric acid price, but does this perform any better as a reference point?
Price of MCP Exported from Russia and Lithuania to Poland (2004-2022)
In 2022, the Russia-Ukraine war disrupted the market. Many feared a shortage of material, and looked for new suppliers. Those able to take advantage of this situation were non-integrated producers that could quickly increase output to supply markets which were once dominated by Russian suppliers. This is clear if we look at Polish imports from May-November 2022 in comparison with imports in the previous period.
Imports of Calcium Phosphates into Poland (Nov 2020 – Nov 2022)
Source: Eurostat, Praxed
For a short period of time, the market experienced tight supply, but since last summer we have seen prices continuously going down, without a clear idea of when and where this will end.
As an illustration: Feedinfo recently reported that the Europe MCP contract price range had decreased for Q1. The average price dropped to a level not seen since Q4 2021, when prices averaged €810/tonne. The Q1 2023 contract price range dropped to €750-850/tonne delivered, down from €1,150-1,200/tonne in Q4 2022.
One problem with IFP is that the market is structurally unbalanced and most of the time oversupplied. Over the last 30 years, despite the closure of large production capacities in the US and Europe, producers have nearly always been fighting for market share.
This is especially true since the end of the European feed phosphate cartel. In 2010, the European Commission issued fines of €175 million to feed phosphate producers for price-fixing and market-sharing in a “hybrid” cartel settlement case for activities that lasted from 1969 to 2004.
Often, the pressure on volumes comes from integrated producers that are unwilling to reduce output. This is a particular problem today, when fertilizer sales are depressed. It is vital for these producers to maintain a minimum production level at their mines and phosphoric acid production lines, as the cost of stopping production is too high to consider it a viable option.
If integrated producers will not reduce production and demand remains weak, does it mean we shall soon see non-integrated producers reducing production capacities?
There have been some changes in the market recently; for example, December marked the closure of the Ercros Flix chemical complex, where Phosphea operated a DCP plant. Meanwhile, we are seeing the emergence on the international market of producers such as Sinochem, which increased production capacities a few years ago, as well as the arrival of new producer Evergrow (Egypt), which exhibited at the recent EuroTier event.
It is clear that non-integrated producers will face more and more competition from low-cost integrated producers in their home markets. This means that the phosphoric acid price benchmark is becoming irrelevant.
Most integrated producers do not market phosphoric acid; this is not considered an alternative to lower feed phosphate or fertilizer sales.
Also, there are few suppliers on the market that can supply phosphoric acid at a quality suitable for IFP production. It is clear that non-integrated producers have little bargaining power vis-à-vis their phosphoric acid suppliers, and pay a premium over phosphoric acid buyers in the fertilizer sector.
Today, the phosphoric acid market reference point is India, which is the largest buyer of phosphoric acid (2-3 million tonnes/year). Indian producers buy phosphoric acid under public tenders controlled by the Indian government.
For much of 2022, OCP – the largest exporter of phosphoric acid – decided to stop communicating the price it contracts with India as a reference price to the rest of the market. This contract price was the basis of many long-term supply agreements between producers and buyers with a price formula.
In the absence of the OCP-India contract price, the market finds itself without one of the major indicators for phosphate prices – but that does not mean it was a particularly good way to establish feed phosphate prices in the first place.
Chinese IFP producers
Today, Chinese producers are exporting IFP everywhere at extremely competitive prices that are becoming the benchmark in most markets. Increasingly, producers must position themselves against Chinese imports.
The Chinese market is not dependent on imports of phosphate rock or phosphoric acid; although China has relatively small reserves compared to Morocco, it is by far the world’s largest producer of phosphates. First and foremost, this is focused on meeting the country’s own sizeable needs.
What Chinese producers export is only a fraction of their production capacity. We know that this capacity is under-utilised, especially for products such as DCP. Moreover, the Chinese feed industry is also gradually adopting lower-phosphorous diets with the use of phytase and more digestible sources of IFP, such as MCP.
Chinese prices are thus not correlated with the phosphoric acid market – it’s more a matter of balancing volumes by using exports to buffer the fluctuating domestic market.
In conclusion, if feed phosphate prices were previously linked to phosphoric acid prices, this is no longer the case: as in many industries, Chinese producers now set the global floor price.
*To illustrate this article, we use Eurostat import trade statistics for imports of calcium phosphates into Poland under HS codes 283526 and 283525, and data from the pink sheet issued by the World Bank.
