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Heavy phosphate supply will choke off price recovery for years

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Phosphate prices will remain under pressure for years to come said Credit Suisse, as the bank's European research branch slashed it price forecasts for the crop nutrient.

"We expect that moderate oversupply in the phosphate sector will continue to weigh on diammonium phosphate (DAP) prices recovery," said Credit Suisse.

Credit Suisse cut prospects for cash DAP prices in Tampa, Florida.

2017 price hopes were cut by $40 a tonne, to $340, and 2018 prices by $30, to $350.

Moroccan supply risk

Among major risks to prices, Credit Suisse pointed to cheaper supplies from OCP, the state-owned Moroccan miner which has exclusive access to some 75% of the world's phosphate reserves.

And potash supply will only increase out to 2018, as the Ma'aden, and OCP add more capacity.

After the new supply comes online, "the chances of any material DAP price recovery will become even lower," Credit Suisse said.

Earnings hopes cut

There is potential extra pressure on prices from cheap feedstock chemicals such as sulphur and ammonia, which are used in processing phosphate rock into DAP.

And Chinese phosphate exports "rose sharply in June and returned to more or less normalized levels after a substantial reduction earlier in the year," Credit Suixxe noted.

This week PhosAgro reported fertilizer production up 8.7% in first six-months of the year.

Falling phosphate prices will also add pressure, Credit Suisse said, pointing to price correlations between the two crop nutrients.

As a result of the lower phosphate price, earnings hopes for the Russian phosphate giant PhosAgro in 2017 were slashed 18%, while the Saudi Arabian Ma'aden had earnings hopes cut by 76%.

Credit Suisse maintained underperform ratings for Ma'aden and Mosaic, and neutral ratings for PhosAgro and Incitec Pivot.

Finding a floor

But although prices will stay near their current low levels, they are at least close to finding a floor, Credit Suisse said.

Downside risk will be limited by the "more or less disciplined behaviour of the major player on the phosphate market, OCP".

And cost of extraction means that many phosphate players "will start curtailing production if we see further decline in the prices".


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