The coronavirus outbreak could "tighten up" fertilizer supplies thanks to its impact in disrupting exports from China, whose shipments have been viewed as a key factor in urea and phosphate price weakness.
The outbreak of the virus, which is centred in China, is “if anything… going to be negative impact on supply coming out of China as opposed to negatively affected demand,” said Anthony Will, the chief executive of US-based nitrogen fertilizer manufacturer CF Industries.
“On the demand side, people are still going to eat.
“So whether it’s coal mines or urea plants” - which in China typically use coal as their energy source, rather than the natural gas more common in Western sites – “those are the places where I think you’re going to see a reduction in labour hours” thanks to factory curbs implemented by Beijing in its drive to contain the disease.
Urea supply “will probably tighten up”, Mr Will told investors.
Potential ‘yield impact’
Bert Frost, the CF Industries senior vice-president of sales, also questioned whether coal mines would open – and this at time when China’s “inventory levels, from our reports, are at low levels”.
He questioned too the priority for fertilizer in China’s disrupted logistical networking, saying that where “urea shipments-to-expots rank in the pantheon of needs is probably not very high,” Mr Frost said.
“It’s going to be not much urea comes out of Hubei province,” the epicentre of the coronavirus outbreak, and where, for instance, producers Hubei Yihua Chemical Industry and Sinopec Hubei are based.
Production hiccups could end up undermining China’s 2020 crop yields too, if they crimp fertilizer supplies for domestic farmers.
If sufficient urea supplies are not available “as they’re entering their spring peak demand, which is about now, that would be a yield impact [on] corn, wheat and vegetables and fruits”, potentially boosting the country’s food import needs.
The comments follow those from rival Yara International last week which highlighted the increasing importance of Chinese supplies for the world urea market.
“Supply growth outside China is receding, and this is increasing demand for Chinese exports,” Yara said, pegging these shipments last year at 4.9m tonnes, nearly double the 2.5m tonnes recorded for 2018.
The group also reported that in the phosphates sector, “strong… exports from China have resulted in oversupplied” markets.
Dag Tore Mo, the Yara International head of market intelligence, also last week backed ideas of Chinese fertilizer output curbs, saying that while “we haven’t seen any hard facts yet… the expectations are that production is still down following the [lunar new year] holiday and looks to remain down for a while”.
However, he added that currently, “the global market doesn’t have a huge need for Chinese exports”, a factor which “could be a good thing for the global market”.