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2 November 2021
Prices will start to decline in a year

The cost of mineral fertilizers in 2022 will continue to break long-term records, but in 2023 it may collapse by about half, analysts say. The rise in prices this year has reduced the purchasing power of farmers, and the current cost of potash and phosphorus fertilizers looks "not fully justified." The nitrogen fertilizer segment is suffering due to a sharp rise in gas prices, but experts expect a long-term trend of lower prices for all types of fertilizers from the second quarter of 2022.

The peak of prices for nitrogen fertilizers may occur in March 2022, for phosphorus fertilizers - by the end of the first quarter of 2022, and for potash fertilizers - by the end of this year. Such forecasts are contained in the VTB Capital study. But, the report notes, the subsequent fall from 12-14-year highs will be protracted, so average prices in 2022 will still be higher than in 2021.

Experts note that although there was an oversupply in the markets of all major fertilizers until September, prices still rose, mainly due to the infusion of funds into the economy by central banks against the background of the pandemic. This has led to a decrease in the availability of mineral fertilizers worldwide to the lowest value in almost 20 years: if prices for agricultural products have increased by only 10-20% since the beginning of 2021, then for mineral fertilizers - by 90-180%.

At the same time, at least for nitrogen fertilizers, there are prerequisites for a shortage. Record high prices for gas, a key raw material for the segment, lead to a reduction in their production in Europe - 20% of capacity has been stopped there. Against this background, the competitiveness of Chinese producers who use both gas and coal has increased. "Being at the top of the cost curve and controlling most of the spare capacity, China could easily compensate for the dropped European volumes. But instead, due to the shortage of electricity, the country has imposed export restrictions since mid-October," VTB Capital notes. This, together with the restriction of production in Europe, may form a shortage of urea on the market in the first half of 2022 at the level of up to 2 million tons.

Despite the rise in price, the cost of nitrogen fertilizers does not cover the increased production costs for low-margin players. According to the baseline scenario, prices for nitrogen fertilizers will increase by another 19% by the end of the first quarter of 2022 to a peak of $840 per ton. The optimistic scenario assumes an even more significant price increase - up to $860 per ton, but then prices will decrease. Thus, according to VTB Capital forecasts, in the baseline scenario, the price of FOB Baltic in 2023 will more than halve, to $303, in 2024 - to $273 and will remain at approximately the same level in 2025, in the optimistic scenario - to $741, $372 and $273, respectively.

In the field of phosphorus fertilizers, where in January 2020 prices were the lowest in 13 years, and in October 2021 - a similar maximum, there was a surplus of 3 million tons against the background of a decrease in purchases from India and Brazil and an increase in supplies from China. According to experts, in an optimistic scenario where the price correction is linked to the lifting of export restrictions in China, the peak price of $875 per ton will be reached in the second quarter of 2022, and then the decline will last 21 months. The baseline scenario assumes a reduction in cost to $713 in 2022, $414 in 2023 and $400 in 2025. In an optimistic scenario, prices will be at $783, $498 and $400, respectively.

In the potash sector, where consumption has also decreased over the eight months of the year, prices have still increased - by 170%. In the second half of the year, the global surplus, according to analysts, will decrease by about 0.5 million tons. As a result, prices are likely to continue to rise: the peak price of $620 per ton FOB Baltic can be reached in December 2021 in the baseline scenario, $640 per ton - in March 2022 in the optimistic scenario. VTB Capital suggests that in 2023 the price may collapse to $245 in the baseline scenario ($279 per ton in the optimistic one), in 2024 and in 2025 - $270 and $275 per ton, respectively, in all scenarios.

Nina Adamova from CEP Gazprombank agrees that the situation on the global fertilizer market remains tense, especially in the nitrogen fertilizer market: many producers due to the rising cost of gas will not be able to lower prices without receiving "huge losses": "Most likely, until February-March 2022, we will repeatedly hear about the forced reduction of loading or even stops of nitrogen fertilizer production units in Europe or China." At the same time, the expert doubts that prices, having maintained a high level until the spring of 2022, will be able to stay at it for a long time.
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