Project activity is brisk in the phosphate market, against solid prices, which once again provided the backdrop for increases in phosphate producers’ revenues and profits in Q3 2011.

In an unprecedented development, Morocco’s OCP went to the debt market for the first time in its history and appears to be poised to go to the international markets shortly. The company is set to spend US$12.2 billion between 2010 and 2020 to increase phosphate production to 50 million tonnes from 26.4 million in 2010. OCP also linked up with Norway’s Yara in a 50:50 joint venture to import phosphate rock into Brazil to feed Yara’s operations in Rio Grande. Financial details behind this deal, expected to complete in Q1 2012, have not been disclosed.

In Brazil, Vale is to spend 9.6% of its total US$21.4 billion planned budget for 2012 on its fertilizer business focused on phosphate rock and potash. It is targeting 8 million tonnes of phosphate rock production next year. Vale’s phosphate project activity includes expansion at Uberaba, Salitre and Bayovar in Peru, and a greenfield phosphate rock project in Mozambique, though not all these projects have received board approval.

In the background, the phosphate market remains firm, albeit taking on a somewhat bearish tone in early December.

As urea prices started to lose ground in late November/early December, DAP prices appeared likely to be impacted in the short-term, amid a lack of immediate spot activity, with buyers holding out for lower numbers. Overall, there is still a strong belief that demand will stay firm on strong crop prices, while supplies of phosphate rock and phosphoric acid continue to be under some pressure. The most recent round of supply disruptions in Tunisia did not help ease supply side concerns.

Meanwhile, recent lower DAP prices have led to a small decline in profit margins, as they have not yet been compensated for by lower third-party raw material costs. Despite this, integrated producers’ profit margins remain relatively robust. Non-integrated producers’ margins turned negative in Q3 2011, based on Integer’s modelling of DAP production costs, implying DAP purchase looks cheaper than manufacturing in India.

Gain insight into the key drivers of the industry’s profitability with Integer’s Phosphate Cost and Profit Margin Service

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