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Much discussion has been given in the past weeks about the
potential impact of logistical bottlenecks on global fertilizer
markets. With today's edition of our Covid-19 update, we thought it
useful to try and quantify this impact in the very-short-term.
In other words: what does it really mean for a country to be
"disrupted" for a week?
In this piece, we will focus on phosphate fertilizers: DAP, MAP,
other NP products, complex (i.e. chemical) NPKs, and
superphosphates (be it single, double, or triple). Fertecon
regularly assesses the performance of production/demand/trade in
its dedicated publication Phosphate Outlook - having just run
through an overview of full-year data available for 2019, we
thought it a good time to share some of this with our
subscribers.
Global demand in 2019 for all these products combined is
estimated at around 48.5 million tonnes when looking at the
P2O5 content of these products (many of which
also carry nitrogen/potash/sulphur). While this is an important
measure of total demand, logistical bottlenecks will limit physical
movement, making a look at tonnes product worth our time: the
aforementioned 48.5 million tonnes nutrient relate to slightly more
than 150 million tonnes product for the calendar year.
This is a fairly sizeable number - which translates into an
average of 2.9 million tonnes each week. Focussing on
internationally traded volumes only, the figure decreases to a
still sizeable 1.1 million tonnes per week - a figure which is
likely to be much higher during peak import times (typically around
Q2-Q3 each year) and slightly lower otherwise. Nonetheless, a key
starting point: every week, the world "needs" more than 1 million
tonnes to be loaded somewhere and equivalently unloaded elsewhere
to keep phosphate fertilizer flows smooth.
From a production point of view, this is equivalent to the
annual capacity of some of the largest single-train granulation
units worldwide; when thinking with a seaborne trade, that's about
20 fully-loaded Panamax cargoes. Looking further in detail in
specific countrie the picture becomes even more striking: taking
Brazil as an example (which receives about 185,000 tonnes of
phosphate fertilizers per month on average) and assuming an average
truck size of 45 tonnes, that's more than 4,000 trucks continuously
on the road carrying product - again, for imported
phosphate-bearing products only, and not including domestic SSP
production, urea, or potash!
All of these figures are mentioned to strengthen one important
point: smooth flows are important. Even more so at a time like
today's unprecedented scenario, where sudden policy changes could
affect key logistical nodes significantly with little or no notice.
As Fertecon expected those knee jerk reactions that we have seen
since the wider outbreak took hold last month were generally
short-term impacts which were soon eased (after all fertilizers are
considered by all countries so far as "essential" businesses,
supporting crop - and therefore - food production). Nonetheless,
such short-term disruption can have important implications.
To better understand this, below is a visual representation of
import flows and of the relative importance of some countries in
terms of phosphate imports. What is clear from this visualization -
albeit imperfect - is that the role of the overall EU market,
Brazil and India is of paramount importance when looking at global
balances.
More specifically, these countries require weekly import flows
as described in the following table (ranked from largest to
smallest). Rather than focussing on the actual numbers themselves,
the relative comparison is perhaps of more importance. A 1-week
full lockdown at Brazilian ports would not be easily absorbed by
India alone for example, and in any case its impact would be
distributed across more than 1 week as no other country may have
prompt availability of port terminal capacity given their own
average import flows.
All numbers are simple averages and have not been adjusted
for seasonality - therefore they represent in fact an
understatement of actual requirements during peak seasons.
The difficulty in replacing a market with alternative outlets is
reflected more than proportionally on the market's supply side,
which is understandably even more concentrated in fewer production
(and export) hubs, as shown below. Disruption to some of the
world's largest exporters will hardly be replaceable by other
suppliers in the short term: spare capacity (where available) will
take time to be brought back into production, and in general there
are not too many options with sufficient spare capacity anyway.
As stated, and we cannot stress this enough, currently there is
no sign of total disruption in key phosphate production sites -
even in the Chinese province of Hubei, the epicentre of the
Covid-19 pandemic, production has already resumed as normal after
about 6 weeks of partial curtailment. Availability of workers on
site has been a concern for some producers, who opted to operate at
lower rates (e.g. in India and Tunisia), but the timing of this
pandemic broadly matched seasonally low exports, and ended up
affecting the timing of planned maintenance/turnarounds rather than
total production levels.
If anything, producers are maintaining healthy operating rates,
benefitting from sustained import demand. At times when disruptions
are always around the corner (and when capital is cheap thanks to
preferential loan rates in many countries) it is easy to see why
importers would willingly frontload their requirement and build up
stocks. How long this can last is yet to be seen.
One potential impact of this new pressure on logistics will be
the choice of product. On the one hand, higher-grade material (e.g.
DAP/MAP) which can be more easily stored and sold later (possibly
as part of a bulk blend) might be the preferred choice as opposed
to lower-grade products (e.g. NPS 20:20:13S or NPK 15:15:15) which
instead occupy the same physical space while bearing lower amounts
of nutrients. On the other hand, multi-nutrient fertilizers
minimize the overall number of dispatches/shipments required, which
in itself could be an interesting feature for smaller markets
facing the strongest bottlenecks.
For more information on access to the actual statistics
presented in this short commentary please feel free to reach out
directly to Alberto Persona, our Principal Analyst overseeing our
long-term phosphate offering.
