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Rabo clouds Agrium's upbeat fertilizer outlook

Recoveries in prices of phosphate and urea fertilizers may prove short-lived, Rabobank warned, even as producer Agrium forecast a "strong spring season" for the nutrients, fuelled by resilient North American demand.

Canada-based Agrium said that a recovery in phosphate prices over the past three months had been driven by "strong demand", particularly in the Americas, at a time of "unplanned shutdowns" by some major producers.

In the US Corn Belt, prices of diammonium phosphate, a key phosphate fertilizer, have hit $500 a short ton this week, up from $397 a tonne three months ago, according to Green Markets.

A rise in prices of urea, a major nitrogen based fertilizer, has also been "driven by strong demand in markets such as North America and Europe and supply constraints in some major export regions," Agrium said.

"Analysts project that a large volume of urea will need to be imported between now and the beginning of the application season," a reflection of farmers delaying fertiliser demand last year in expectation of price falls.

"US offshore urea import levels in the first half of 2014 will likely need to meet or exceed record levels achieved in 2013," the group said.

Technical support

"Global nitrogen and phosphate markets have firmed significantly in early 2014 in response to what we expect will be a strong spring season," said Chuck Magro, Agrium's new chief executive.

However, Rabobank cautioned that such price rises may prove only temporary, saying strength in phosphate prices had "largely stemmed from paper trade, with traders needing to cover short positions.

"It remains to be seen whether this price rally will be long-lived."

Fertilizer consumption by India, the top phosphate importer, may be limited by constraints on agricultural subsidies forced by tight government finances, while Chinese exports face a lower hurdle from reduced export levies.

Price falls ahead?

China has reduced its levy on urea shipments too in the ongoing January-to-June period, which with November-December attracts higher export taxes than the July-to-October window,

For urea, the high tax season levies have been reduced to 15% plus 40 yuan, from a previous rate of 77%.

At a price of $350 a tonne, that would cut the levy from $270 a tonne to less than $60 a tonne.

"Permanent Chinese access to the international market is likely to put negative pressure on global fertilizer prices," Rabobank said, if adding that less large swings in Chinese prices would "alleviate some of the price volatility" in urea and phosphates.

This would not be evident in the first quarter of 2014, with China lacking the supplies to dump onto international markets.

"However, at the end of this quarter, prices for phosphates and urea could fall to levels seen before the price spike."

'Overcapacity looming'

On potash, Rabobank forecast prices remaining "stable at current levels", saying that "overcapacity" was "looming over the market" at a time when supply pipelines already appeared full.

"The US market for potash is still slow. With market prices for potash sliding, buyers will likely hold-off purchasing decisions until later in the quarter."

Agrium, part of the Canpotex consortium of North American potash exporters, said that it was to take an "extended 14-week turnaround" at its Vanscoy potash mine, where 50 workers were trapped underground for a night at the weekend by a fire.

Agrium is preparing the mine for a 1m-tonne expansion project.

The group said that the potash market had entered 2014 "with more clarity and stability" after the tumble in prices last year sparked by the break-up of the Belarusian Potash Company cartel.  

Chinese purchase agreements last month have "provided additional certainty to the market, and pent up demand by other importing regions is expected to result in improved global import demand in the first half".

Profits fall

The comments came as Agrium unveiled a 72% tumble to $99m in earnings for the October-to-December quarter, reflecting the dent from lower fertilizer prices, offset only in part by a 64% jump to $123m in operating profits from the farm retail division.

"Agrium's retail results were excellent this quarter, particularly considering the decline in nutrient prices that occurred and the compressed fall application season in the US," Mr Magro said.

Underlying earnings per share came in at $0.87, marginally above the $0.86 per share that investors had expected.

The group last month warned that its earnings would come in towards the bottom of the range of $0.80-1.25 a share that it had previously guided to.

Agrium shares stood 2.2% higher at Can$100.85 in late deals in Toronto.

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