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Phosphate prices may find support from Chinese output cuts

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PhosAgro flagged the potential for support to phosphate prices from Chinese production cuts, echoing comments raised by rival Mosaic, as the Russian group unveiled an acceleration in sales, supported by its domestic market.

The Moscow-based group acknowledged the weight on phosphate prices in the first half of 2017 from factors including the "ramp-up" of new capacity in Morocco, where sector giant OCP is expanding operations, and in extra exports from Saudi Arabia too.

However, it also stressed a rise of almost 25% in exports during the first half of the year from China – where output could be facing cutbacks.

"Further potential production cuts in China," besides a seasonal rise in northern hemisphere and, in particular, Indian demand "may provide extra protection to market prices against additional supply" stemming from OCP and Saudi Arabia's Ma'aden.

Chinese outlook

The comments follow a forecast last week from US-based Mosaic, the world's biggest producer of finished phosphate fertilizers, that Chinese exports will, despite their strong start to 2017, end the year down on the 2016 total, by some 500,000 tonnes at 9m tonnes.

Michael Rahm, vice-president of market and strategic analysis at Mosaic, flagged a boost to China's own demand, saying that "we expect the domestic [Chinese] market to really kick in here over the next few weeks".

Meanwhile, upward pressure on raw material costs, for the likes of the ammonia products with which phosphates are bonded for sale as DAP (diammonium phosphate) or MAP (monoammonium phosphate) is reducing Chinese phosphate groups' willingness to settle for export prices.

According to Mosaic, interior Chinese phosphate prices are about $10-15 a tonne higher than the export equivalent.

"Chinese producers do not necessarily have a competitive advantage in terms of sulphur prices or ammonia prices since they make most of their ammonia with coal," Mr Rahm said.

"And coal prices have actually increased over the last six months."

'Priority market'

PhosAgro's comments came as it unveiled a 15.0% rise to 2.07m tonnes in sales of fertilizers in the April-to-June quarter, with phosphates accounting for 1.64m tonnes of these, a rise of 13.2%.

The group's chief executive, Andrey Guryev, flagged in particular growth in sales of MAP, which soared by more than 25% year on year, "driven by demand from the Russian and Brazilian markets".

"Russia remains a priority market for the company," said Mr Guryev, adding that PhosAgro's domestic sales for the January-to-June period had risen by more than 20%, "despite overall consumption for the Russian market remaining nearly flat".

PhosAgro's fertilizer output rose by 15.7% to 1.04m tonnes during the latest quarter, led by 20% rise to 1.65m tonnes in phosphates.

PhosAgro shares stood 1.5% higher at 2415 roubles in late deals in Moscow.

By Mike Verdin

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